Latest / Bloomberg Intelligence / Admiral Stavridis: U.S. Is Entering A Period of Vulnerability

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Admiral Stavridis: U.S. Is Entering A Period of Vulnerability · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot Com. It is time for Bloomberg Opinion,
0:22
Speaker 1: and I'm excited now to welcome our next guest, Admiral
0:25
Speaker 1: James Stabrita's retired Navy admiral, former military commando of NATO
0:29
Speaker 1: and of course Bloomberg Opinion columnist. Admiral what is the
0:35
Speaker 1: thing that most keeps you up at night right now?
0:37
Speaker 1: I mean there's a plethora smore gas board if you like,
0:40
Speaker 1: things that I'm sure bother you and questions that you're
0:44
Speaker 1: trying to answer. But the particular one right now as
0:46
Speaker 1: we are, what three weeks out from the election, First
0:51
Speaker 1: and foremost, it's the distinct possibility of real turbulence domestically
0:56
Speaker 1: here in the United States after the election, and let's
1:00
Speaker 1: hope for a clean win on election eve, but I
1:04
Speaker 1: think that's unlikely and therefore there'll be court challenges and
1:08
Speaker 1: so what worries me, Vonnie and keeps me awake at
1:11
Speaker 1: night at the moment, and the things I worry about
1:13
Speaker 1: in the international sphere is that an opponent might take
1:17
Speaker 1: advantage of this period of weeks or even months of turbulence.
1:22
Speaker 1: I think it will resolve by inauguration day one where
1:26
Speaker 1: or the other. But you could see China making a
1:28
Speaker 1: move on Taiwan. You could see Iran doing something in
1:31
Speaker 1: the Arabian Gulf. You could see North Korea rattle a
1:35
Speaker 1: saber as they did just a couple of days ago,
1:37
Speaker 1: rolling out a new I CBM. So that sense of
1:42
Speaker 1: potential turbulence in the near term is the first thing
1:45
Speaker 1: I worry about, and the second one, less obvious, is
1:48
Speaker 1: cyber um. We have moved so many things into the
1:51
Speaker 1: cyber world, Vanni. I am concerned that our opponents might
1:56
Speaker 1: take advantage of that. And if you merge those two
1:59
Speaker 1: things together, concern about cyber and that turbulence after the election,
2:04
Speaker 1: I think we're headed into a period of vulnerability. That's
2:07
Speaker 1: what keeps me awake at night right now. Why wouldn't
2:11
Speaker 1: those opponents take advantage, Admiral, Can you give us reasons
2:14
Speaker 1: why it would not be in their interest to do thus,
2:18
Speaker 1: because long term, uh, the United States will come out
2:22
Speaker 1: of this period capable, ready to respond. We have the
2:27
Speaker 1: most capable military in the world, so we have military deterres.
2:31
Speaker 1: We still have the strongest economy in the world. It
2:34
Speaker 1: will come out somewhat battered, as I don't need to
2:36
Speaker 1: tell a blue Berg columnist, and China is having a
2:40
Speaker 1: better swifter recovery. But I wouldn't bet against the United
2:44
Speaker 1: States in the long term. So I think our opponents
2:47
Speaker 1: are smart enough. I hope to realize that we have
2:50
Speaker 1: the military capability, we have the economic kept and lastly,
2:54
Speaker 1: we have that network of allies, partners and friends around
2:57
Speaker 1: the world. I think it would be foolish for China
3:01
Speaker 1: to make a move. I think it would be a
3:03
Speaker 1: mistake for Iran to do so, or Russia. But you
3:06
Speaker 1: still have to account for and pay attention to that possibility.
3:12
Speaker 1: What's the apparatus that's already up and running that these
3:17
Speaker 1: countries would have to tamp down in order to sort
3:19
Speaker 1: of comply with international accepted practices. Pre election, I mean,
3:24
Speaker 1: we already know that China and Russia have huge troll farms,
3:28
Speaker 1: and you know, a huge apporatus basically designed to interfere
3:31
Speaker 1: in any election all over the world should they wish to.
3:35
Speaker 1: Is there any evidence to suggest that they might tamp
3:37
Speaker 1: that down. I don't think so, because at the end
3:42
Speaker 1: of the day, there's this sort of sense that, oh,
3:45
Speaker 1: the Russians and the Chinese are working to reelect Donald Trump.
3:49
Speaker 1: I don't think that's quite right. I think what the
3:51
Speaker 1: Russians in the Chinese are doing is to try and
3:54
Speaker 1: create real divisions in American society, and they will do
3:58
Speaker 1: that as you a, using social media, primarily, but also
4:04
Speaker 1: using actual incidents. I think as we get closer to
4:07
Speaker 1: the election, I could foresee, for example, a false flag
4:11
Speaker 1: operation where hundreds of ballots are suddenly discovered in a dumpster.
4:18
Speaker 1: It's entirely possible a physical act like that could be
4:21
Speaker 1: undertaken by our opponents, as well as all the social
4:24
Speaker 1: network problems that you've just addressed, and no, there are
4:28
Speaker 1: no international sanctions that can be applied uniformly. That's why
4:33
Speaker 1: it's important that the United States and clear signals to
4:37
Speaker 1: these nations that we will respond in the moment, will
4:41
Speaker 1: defend better, and we will also respond potentially after the
4:44
Speaker 1: election when we sort out what has happened, and then
4:48
Speaker 1: take action in the cyber world against those who have
4:51
Speaker 1: attacked US. Now, Admiral Cebidas, you have a great column
4:54
Speaker 1: out on the Boomberg today. COVID commission is crucial for
4:57
Speaker 1: a US recovery. You say, an investigation of the p
5:00
Speaker 1: that makes it into scientists, doctors, and gasp, a big
5:04
Speaker 1: pharma executive explained to us, you know who might put
5:08
Speaker 1: this together given that we're not quite sure who will
5:10
Speaker 1: be leading the country. There's a lane doc session at
5:13
Speaker 1: some point, and then there'll be, you know, either another
5:16
Speaker 1: four years with President Trump or four years with President Biden.
5:20
Speaker 1: So what how would this work? Well, let's look at history.
5:25
Speaker 1: Um After Pearl Harbor, where hundred Americans shockingly died on
5:31
Speaker 1: December seven, there was a national commission set up by
5:35
Speaker 1: the Congress. After the nine eleven events where three thousand
5:39
Speaker 1: Americans died, there was a national commission set up by
5:43
Speaker 1: the Congress. I think we're going to see the same thing.
5:45
Speaker 1: We're now at two hundred fifteen thousand Americans dead, probably
5:50
Speaker 1: by inauguration will be north of three hundred thousand. Most
5:54
Speaker 1: observers think, so there has to be accountability. We have
5:58
Speaker 1: to look back and see how did this happen, just
6:01
Speaker 1: like we did at Pearl Harbor, just like we did
6:02
Speaker 1: at kind of eleven. And more importantly, we've got to
6:05
Speaker 1: look forward so that it never happens again. What are
6:08
Speaker 1: the practical things we need to do to prepare ourselves
6:12
Speaker 1: for this so how it would happen? And I think
6:15
Speaker 1: this will happen. Whoever is in office after January will
6:21
Speaker 1: be a congressional push because all of us, all of
6:25
Speaker 1: us who are American citizens, are to demand that our
6:29
Speaker 1: national government focus on this. And the Congress is very
6:33
Speaker 1: well equipped with the tools to do this. They could
6:36
Speaker 1: appoint to leaders to set it up. You pick about
6:40
Speaker 1: a dozen commissioners I lay out in the article, uh
6:43
Speaker 1: some ideas for what it would look like, and you
6:45
Speaker 1: give them. You know this won't be instant work. You
6:48
Speaker 1: give them about two years to put this together. The
6:51
Speaker 1: Pearl Harbor Commission took five, Eleven took three. I think
6:55
Speaker 1: we can do this in two years. It will be
6:59
Speaker 1: perhaps the significant such commission American history. You've got to
7:03
Speaker 1: do it all right, well, I imagine it's coming at
7:07
Speaker 1: some point and our thanks to you, it's a mustery
7:09
Speaker 1: today COVID commission crucial for US recovery. Retired Admiral James
7:13
Speaker 1: Stabida's former NATO military commander, it is time now to
7:19
Speaker 1: have a look at a big tech. Of course, big
7:21
Speaker 1: tech has been dominating markets basically, even if it hasn't
7:23
Speaker 1: been dominating casual conversation outside of markets. But certainly that
7:29
Speaker 1: might start to change once we start to get Congress
7:32
Speaker 1: looking into the regulation of big tech. Let's bring in
7:35
Speaker 1: Mark Douglas, who CEO of Steel House. He is currently
7:39
Speaker 1: in Istanbul, but he is based generally in s in
7:43
Speaker 1: l A. So Mark, thank you so much for joining.
7:46
Speaker 1: First of all, talked to us about Istanbul. What's it
7:48
Speaker 1: like at the moment um. It's bustling, So it's the
7:53
Speaker 1: weather is great and there are a ton of people
7:56
Speaker 1: on the street. Everyone's wearing masks and the feels great.
8:01
Speaker 1: I've been traveling all over the world during COVID, so
8:03
Speaker 1: that I got here two days ago. Yeah, it's pretty
8:06
Speaker 1: amazing how the Eastern European countries are treating this slightly
8:09
Speaker 1: differently from some of the rest of the countries in
8:12
Speaker 1: the world. And uh, you know, Turkey would be sort
8:14
Speaker 1: of a little bit in that group. So talk to
8:17
Speaker 1: us about regulating big tech and what you anticipate will
8:21
Speaker 1: see over the next few days two weeks in Congress.
8:23
Speaker 1: I mean, we're in a sort of strange period where
8:25
Speaker 1: you know, senators are up for re election, we're obviously
8:28
Speaker 1: re electing a president or electing a president, and there's
8:32
Speaker 1: a lot of uncertainty. Is it the best time to
8:33
Speaker 1: be doing this? Well, I think the reasons they're doing
8:39
Speaker 1: it are legitimate. I mean, these large companies Apple, Amazon, Google,
8:44
Speaker 1: and Facebook and maybe even a few others, they legitimately
8:49
Speaker 1: do have monopoly power. I think Apple is kind of
8:51
Speaker 1: trying to fly a bit under the radar, but um,
8:54
Speaker 1: they have probably the biggest monopoly, which is the app
8:57
Speaker 1: store and the thirty percent fee that they charge, and
9:01
Speaker 1: a complete monopoly on getting apps on into your iOS devices.
9:05
Speaker 1: But I think all these companies are vulnerable, and I
9:08
Speaker 1: think it's it's legitimate to kind of investigate them and
9:12
Speaker 1: try to find solutions that ultimately create more competition and
9:16
Speaker 1: are better for consumers in the long term. Who's most
9:19
Speaker 1: at risk of having to change what they're doing? So
9:23
Speaker 1: maybe you know, breaking off the piece or you know,
9:27
Speaker 1: spinning off a piece. Yeah, I think Apple is. So
9:31
Speaker 1: when you look at someone like Amazon and Google, I
9:34
Speaker 1: think the big complaints are mainly about their search results.
9:38
Speaker 1: Amazon when you go shopping, and Google obviously with Google Search.
9:42
Speaker 1: But Apple's entire business model that them breaking the two
9:46
Speaker 1: trillion dollar mark in market gap is essentially based on
9:50
Speaker 1: them having a complete monopoly on um what gets on
9:54
Speaker 1: your onto your iPhone and the and the things they charge.
9:57
Speaker 1: And if if the US kind of the as government
10:00
Speaker 1: kind of interferes with them, it's gonna take some time.
10:03
Speaker 1: I think that kind of really starts at disrupted the
10:06
Speaker 1: heart of their business model, which was has been driving
10:09
Speaker 1: their market cap. They'll obviously survive, they may have to
10:12
Speaker 1: charge lower fees, but that and you look at bundles
10:15
Speaker 1: they're introducing, like Apple One, the Apple one bundle, which
10:18
Speaker 1: is basically you know whether you watch it, read it,
10:21
Speaker 1: listen to it, yet they them or or now Apple
10:25
Speaker 1: Fitness is part of that bundle like that could potentially
10:29
Speaker 1: get attacked also by the US government, So so they
10:32
Speaker 1: are I think the most vulnerable. What's for the senator is,
10:36
Speaker 1: I mean, don't all senators want to keep big tech
10:39
Speaker 1: on site in some way? Well, I mean the it's
10:43
Speaker 1: a big driver for the US economy. So on the
10:45
Speaker 1: one hand, you want to keep um, these big companies
10:49
Speaker 1: who are create a lot of jobs and generate UM
10:53
Speaker 1: a lot you wanna Essentially you don't want to really
10:56
Speaker 1: harm them and allow competition from outside of the United States. Um,
11:00
Speaker 1: if you're kind of like a pro America first type
11:04
Speaker 1: type senator. But I mean it's it's legitimate concerns. I
11:08
Speaker 1: think ultimately tech is an easy target everyone. It's a
11:12
Speaker 1: like do nothing right type environment right now, especially with
11:16
Speaker 1: the topic of censorship and what should be allowed on
11:18
Speaker 1: social media, talking about Facebook and Instagram and what shouldn't
11:22
Speaker 1: be allowed. So you know, with that bigger talk topic,
11:25
Speaker 1: that bigger target and a lot of people being kind
11:27
Speaker 1: of angry at social media, I mean, it's easy to
11:31
Speaker 1: join their bandwagon and and try to leverage it to
11:33
Speaker 1: create a kind of populist sentiment towards your candidacy. I mean,
11:38
Speaker 1: you sort of got the impression that no matter what happens,
11:41
Speaker 1: these talks are going to keep going higher anyway. Um,
11:44
Speaker 1: nothing has dented them up to now. What's your sense
11:48
Speaker 1: of where they go on I'm talking about basically Apple
11:51
Speaker 1: and Alphabet I guess yeah, I think well, I think
11:55
Speaker 1: Amazon is by far the biggest. Apple used to be
11:58
Speaker 1: the biggest innovator. Um. I think people think of Apple
12:02
Speaker 1: as an innovator now, but the last real product they
12:05
Speaker 1: introduced that had any level of success with the Apple
12:09
Speaker 1: Watching two thousand fourteen. Now it's just cycles of evolution
12:12
Speaker 1: rather than you know, something really innovative. But um, Amazon
12:16
Speaker 1: continues to be the big innovator with the success they've
12:21
Speaker 1: had with the Echo and a lot of the acquisitions
12:24
Speaker 1: that they've done. So I think, UM, I I think
12:27
Speaker 1: ultimately Amazon is you know, kind of retakes the top
12:32
Speaker 1: spot as the most valuable company, and the others are
12:35
Speaker 1: playing catch up. Google is kind of being attacked from
12:39
Speaker 1: all sides, um again by Amazon. In terms of Amazon's
12:43
Speaker 1: app business, Um, that search business is obviously like they
12:48
Speaker 1: have no competition basically worldwide except for China with the
12:51
Speaker 1: search business. So I think, UM, I don't think they will.
12:56
Speaker 1: They're not as vulnerable as as someone like Apple is,
12:59
Speaker 1: and may be to a lesser extent Amazon. Speaking of Apple,
13:03
Speaker 1: we have, of course a big event tomorrow. There's a
13:06
Speaker 1: lot going on tomorrow, including some enemy Cony Barrett hearings
13:10
Speaker 1: on the Hill. But at the same time, and a
13:13
Speaker 1: lot of people will be looking at Apple's launch and
13:15
Speaker 1: we're meant to get some more phones. What do you
13:17
Speaker 1: think is going to happen? Mark? What have you heard?
13:19
Speaker 1: And will people upgrade? Yeah? So the Apple twelve is
13:24
Speaker 1: the big announcement. I think there's no secret on that.
13:27
Speaker 1: The probably the most innovative thing coming out of the
13:31
Speaker 1: Apple twelve announcement is the strong rumors that there's going
13:34
Speaker 1: to be a new Apple Mini and which will bring
13:37
Speaker 1: the price point down to essentially half. Remember when Apple
13:42
Speaker 1: introduced the Apple X, everyone was complaining about how expensive
13:46
Speaker 1: it was. I mean, the phone costs more than like
13:48
Speaker 1: Apple's lowering computer. And so now they're introducing a phone
13:53
Speaker 1: at half the price point. And what's really interesting about
13:55
Speaker 1: that think really key to watch is Apple is a
14:00
Speaker 1: lot of their profit is increasingly coming from the services,
14:03
Speaker 1: and so the Apple One bundle on an Apple Mini,
14:06
Speaker 1: I think the Apple wants a subscription from every household
14:10
Speaker 1: essentially in the world, and so they are bringing down
14:14
Speaker 1: the price point to their products in order to get
14:16
Speaker 1: to encourage more people to get an Apple one subscription.
14:21
Speaker 1: And also with Apple Fitness Plus, which hasn't been launched yet,
14:25
Speaker 1: I mean, they're now going after Peloton and other fitness companies.
14:29
Speaker 1: So it's all about that kind of ongoing revenue stream
14:32
Speaker 1: after you buy the device. So it's a really smart
14:35
Speaker 1: move to bring low, low priced iPhone, current model, low
14:38
Speaker 1: price iPhone and then essentially make hundreds of dollars a
14:43
Speaker 1: year more in the monthly subscription fees that you're gonna
14:46
Speaker 1: pay for for all forms of entertainment and business that
14:49
Speaker 1: that they want you to beg Mark, we're out of time.
14:52
Speaker 1: But is it a wild success even in pandemic times?
14:57
Speaker 1: Say that question one of my time. I comminue people
14:59
Speaker 1: buy it even when cash is low in pandemic times. Um,
15:03
Speaker 1: I don't think the I think the example twelves are
15:06
Speaker 1: a bit of a diet. I mean, they were introducing
15:08
Speaker 1: five G but essentially a lot of people seem to
15:11
Speaker 1: be the pole. The polling is saying that people want
15:14
Speaker 1: to buy them, So I guess they're going to be successful.
15:16
Speaker 1: All right, thank you so much for joining us. Mark
15:19
Speaker 1: Douglas is a CEO of Steel House. Let's see tomorrow
15:23
Speaker 1: what actually emerges from that Apple event. We appreciate Mark's
15:27
Speaker 1: time today. All right, it is time now to get
15:32
Speaker 1: to one of our old chestnuts. Bill Smeade, always love
15:35
Speaker 1: having you on the program. Bill Smide is CEO and
15:37
Speaker 1: CIO of Smade Capital Management, and Bill, I'm sure you
15:41
Speaker 1: have varying opinions on everything that's happening this week. Having
15:44
Speaker 1: been in the market so long, what is the one
15:47
Speaker 1: thing that markets will concentrate on this week? Well, thanks
15:51
Speaker 1: for having us, Monny. The the markets are concentrating on
15:58
Speaker 1: um what I call COVID misery investments, and they are
16:05
Speaker 1: exacerbating a trend of concentrating capital in the vast monopoly
16:13
Speaker 1: UH companies, and they just doesn't seem to be any
16:17
Speaker 1: end to the urge on the part of investors to
16:22
Speaker 1: uh extrapolate what is going on far out into the future.
16:28
Speaker 1: So Bill, I mean, I know that you invest slightly
16:31
Speaker 1: differently to sort of watching the day to day news
16:33
Speaker 1: headlines anyway, as do the same you know, most investors
16:37
Speaker 1: for the long haul. But at the same time, you
16:39
Speaker 1: have to wonder which of these macro events could really
16:43
Speaker 1: change the dynamic in the market. Is there one out there? Well, Actually,
16:48
Speaker 1: what happens is below the surface economics actually do change.
16:54
Speaker 1: So for example, you would expect stock prices to peak
16:59
Speaker 1: at the point where the prospects for the industry appear
17:02
Speaker 1: to people to be the most favorable. And with all
17:07
Speaker 1: of people being afraid of catching COVID and kind of
17:11
Speaker 1: self quarantining, the reliance on the large tech companies will
17:16
Speaker 1: probably never be higher, I would guess, than at this
17:19
Speaker 1: moment in time. So it only makes sense that those
17:21
Speaker 1: stocks are very high right now because the prospects for
17:25
Speaker 1: their profits due to the current circumstances. But at the
17:29
Speaker 1: same time that's going on, it also lays the groundwork
17:33
Speaker 1: for superior economics in other areas where the stock prices
17:37
Speaker 1: are extremely low. And that's our job is to to
17:40
Speaker 1: figure out where economics are very favorable and then uh
17:43
Speaker 1: and then adjust appropriately. Have you making any adjustments? We are,
17:50
Speaker 1: and it's just painful, Vinnie. We are tacking away from
17:55
Speaker 1: investments that we've made in the last three to ten
17:57
Speaker 1: years that are becoming too popular because of how popular
18:01
Speaker 1: growth stocks are. We're taking money from there and applying
18:05
Speaker 1: it to favorable economics in places like energy, in places
18:09
Speaker 1: like uh real estate and and by the way, that's
18:13
Speaker 1: the two worst performing sectors today, so you know and
18:17
Speaker 1: and uh so I'll give you one example. It was
18:21
Speaker 1: announced that Warren Buffett's lieutenant Ted Wessler now owns almost
18:25
Speaker 1: six percent of Dillard's department stores, and the stock has
18:29
Speaker 1: soared today thirty. Uh. Well, we own two companies that
18:35
Speaker 1: are landlords to Dillard's. So if he if he likes Dillard's,
18:40
Speaker 1: he'd probably like the landlords, and that would be Simon
18:43
Speaker 1: Properties and mace Rich. Just in the Phoenix Valley where
18:46
Speaker 1: I am, there are seven dillard stores at seven separate
18:50
Speaker 1: mace Rich properties, and uh I counted, I think Simon
18:54
Speaker 1: has seventeen dillard stores. So while they're really excited about Dillard's,
18:59
Speaker 1: they aspies their landlords, and I would suggest that the
19:03
Speaker 1: two should go in tandem. Well, explain that to me,
19:07
Speaker 1: because I've just been looking at mass Ridge and Simon
19:09
Speaker 1: Poverty Group and obviously the stocks you know, plummeted and
19:12
Speaker 1: march and they haven't really recovered since. And I think
19:15
Speaker 1: the question is okay. So Dillard's might be okay, and
19:18
Speaker 1: Dillards might be able to pay his rent, but what
19:19
Speaker 1: about all of the other tenants. Why are you still
19:22
Speaker 1: bullish on these real estate companies? Well, first of all,
19:27
Speaker 1: they are very close to uh most American population, and
19:34
Speaker 1: so there's two possibilities here. One is that two or
19:38
Speaker 1: three years from now, the virus is gone, vaccinations are enforced,
19:44
Speaker 1: and cures or whoever had it have come to pass,
19:48
Speaker 1: and then people go back to something that's a new normal,
19:52
Speaker 1: but but closer to the way we used to live.
19:56
Speaker 1: And under that environment, these people own very attractive property
20:00
Speaker 1: in some of the most attractive places in the United States, uh, Florida, Texas, California, Arizona.
20:08
Speaker 1: That that's where people are moving, uh to the sun
20:11
Speaker 1: Belt and and that's that's where they own a lot
20:14
Speaker 1: of properties. And uh So the answer is, um, this
20:20
Speaker 1: idea that we're all just going to huddle in our
20:22
Speaker 1: house and do nothing for the next five years and
20:26
Speaker 1: spend all of our money and never leave the house,
20:29
Speaker 1: and spend all of our time on on electronic devices
20:33
Speaker 1: and be anti social. I just think it's it's it's
20:36
Speaker 1: highly unlikely it's worth making some investments with a very
20:40
Speaker 1: high reward potential that the risk has been taken out
20:44
Speaker 1: by depressed prices. All right, Bill, thank you so much.
20:48
Speaker 1: Bill Smead is CEO and c IO of Sneed Capital Management.
20:52
Speaker 1: Until they're talking about some of the real estate companies
20:55
Speaker 1: and It's really interesting to hear the different opinions on
20:58
Speaker 1: on this, because of course you get those that same
21:00
Speaker 1: malls are dead, and you get those that say no,
21:03
Speaker 1: I mean, they might be in a little bit of
21:04
Speaker 1: a lull period, but at some point we'll have to
21:07
Speaker 1: get back to something akin to the life that we
21:09
Speaker 1: had been living. All right, and this portion of Bloomberg
21:16
Speaker 1: markets now concentrating on big tech and break up potentially
21:19
Speaker 1: in the future. Let's bring in Steven Strauss, who joins
21:23
Speaker 1: US from Princeton University's Woodrow Wilson School of Public and
21:26
Speaker 1: International Affairs, where he is a visiting professor. Stephen, you know,
21:31
Speaker 1: you're a sort of ahead of the game on this,
21:33
Speaker 1: but the US is a little more let's say, wide reaching.
21:38
Speaker 1: I mean, the US could actually mandate for these companies
21:40
Speaker 1: to start breaking themselves apart. Do you see that even
21:43
Speaker 1: potentially happening. It's going to be a long where um
21:48
Speaker 1: if if history is any guy, I looked up some
21:52
Speaker 1: of the numbers. Breaking up Stairard Oil was about corny
21:55
Speaker 1: year process. The IBM anti trust litigation like years. The
22:00
Speaker 1: A T and T anti trust litigation went about ten years,
22:03
Speaker 1: and Microsoft anti trust went about ten years, and particularly
22:07
Speaker 1: in the technology sector, it's not standing still. I mean
22:11
Speaker 1: there have been some rueful jokes at by the time,
22:13
Speaker 1: particularly the Microsoft IBM cases were settled, the original basis
22:18
Speaker 1: for the cases were essentially irrelevant. That's actually quite stunning.
22:25
Speaker 1: I mean, that's really really stunning. Is that a testament
22:27
Speaker 1: to the ability of these companies to put up a defense,
22:30
Speaker 1: an argument for how they should be how they are?
22:32
Speaker 1: And if that's the case, are we looking at something similar? Um,
22:37
Speaker 1: it's certainly a comment on you know, these companies can
22:39
Speaker 1: afford the best lawyers in the world. Um. You know,
22:43
Speaker 1: the American legal system has many virtue speed is not
22:46
Speaker 1: necessarily among them. So I mean think about the process.
22:50
Speaker 1: First there's the trial and the court. Whoever loses will
22:53
Speaker 1: appeal it. Then there's another round of appeals. I mean,
22:56
Speaker 1: it just it can go on for a very long time. Again,
23:00
Speaker 1: past performance is not a necessarily a predictor of future results,
23:05
Speaker 1: but looking at the historical record, and it was a
23:09
Speaker 1: side point, there's a general feeling that to really take
23:11
Speaker 1: on these companies there may need some changes to the legislation.
23:15
Speaker 1: So that's going to have to get through Congress. Okay,
23:18
Speaker 1: when you say the legislation of what legislation exactly are
23:21
Speaker 1: we talking about. Well, the antitrust legislation we currently have
23:25
Speaker 1: on the books, you know, originally dates the nineteenth century.
23:29
Speaker 1: It was last updated during the nineteen seventies. Uh So,
23:34
Speaker 1: for example, one of the things that the House is suggesting,
23:37
Speaker 1: he's rewriting the antitrust laws so that if they're unfairly
23:41
Speaker 1: treating their suppliers, they're kind of crushing their suppliers, it
23:45
Speaker 1: will easier, it'll be easier to take action against them.
23:48
Speaker 1: Most of antitrust at this point is oriented towards are
23:52
Speaker 1: consumers being heard. Whereas the issue with Amazon, for example,
23:55
Speaker 1: is there's a strong argument that what it's doing is
23:58
Speaker 1: harming its suppliers. Um, you did so for a lot
24:03
Speaker 1: of different reasons. Um, you know, they'd like to change
24:06
Speaker 1: the laws on Facebook. Other companies can't buy without proving
24:11
Speaker 1: that doing so well enhanced competition and health consumers. Yeah,
24:16
Speaker 1: so there's certainly possibility of action under interesting law. I mean,
24:21
Speaker 1: Google's market share and search is something like which and
24:26
Speaker 1: which certainly presents an antitrust issue. And indeed, rumor mill
24:30
Speaker 1: I think more than rumor mill. At this point, the
24:32
Speaker 1: Department of justice is looked. Justice is looking at initiating
24:36
Speaker 1: a antitrust action against Google. Yeah, I mean these companies,
24:42
Speaker 1: do they have a plan B in case they're forced
24:45
Speaker 1: or are they just you know, do they have that
24:47
Speaker 1: little humility that they're not even thinking that they might
24:50
Speaker 1: be forced? Well, I mean it depends. I mean, it's
24:53
Speaker 1: a question. It's a smart movie. One maneuver on their
24:56
Speaker 1: part might be thinking about, Look, we don't want ten
24:58
Speaker 1: years of litigation, is or something relatively straightforward we can do.
25:03
Speaker 1: But honestly, from their point of view, given that, you know,
25:06
Speaker 1: I'm assuming their lawyers are pointing out to them that
25:10
Speaker 1: litigation is a process, there's gonna be years before any
25:13
Speaker 1: of the settles. I'm not sure I would be making
25:15
Speaker 1: any major plans to split up. Um, they might be
25:19
Speaker 1: making plans to be better, nicer competitors while you're in litigation.
25:24
Speaker 1: Probably the last thing you want to be do, want
25:26
Speaker 1: to be seen doing, is something that's viewed as anti competitive.
25:30
Speaker 1: People tend to get Microsoft partially got its big start
25:33
Speaker 1: because IBM was in the middle of antitrust litigation and
25:37
Speaker 1: wanted to be seen as being friendly to a smaller
25:39
Speaker 1: software company. Are there any precedents here when it comes
25:44
Speaker 1: to you know, the law. Well, I mean in what
25:50
Speaker 1: sense to mean precedence. I mean, we've certainly we ever
25:52
Speaker 1: broken up a big company before successfully and permanently. Um well,
25:57
Speaker 1: Standard Oil was broken up. H and T was split
26:00
Speaker 1: into seven companies. Microsoft, Microsoft, I'm sorry, IBM was forced
26:05
Speaker 1: to spin off some subsidiaries. Um so, yeah, I mean
26:09
Speaker 1: it's been done. At the side point, it's not necessarily
26:12
Speaker 1: bad for the companies, at least some argument that the
26:16
Speaker 1: antitrust litigation forced them to rethink their business models. They
26:21
Speaker 1: may become more lucrative after the fact. Yeah, I mean,
26:24
Speaker 1: I suppose Amazon is is the one that most people
26:28
Speaker 1: interact with most. I mean, obviously Apple for those who
26:31
Speaker 1: you know can afford to use the Apple Uh equals
26:34
Speaker 1: here if you like. But you know, you could imagine
26:38
Speaker 1: a world in which Amazon splits up and each part
26:40
Speaker 1: of it is totally viable and successful on its own. Yeah,
26:46
Speaker 1: I mean, you could think of Amazon being split off
26:48
Speaker 1: cloud computing, which you can make an argument really has
26:51
Speaker 1: nothing to do with the retail operation anyway, split up
26:55
Speaker 1: the retail operation into vertical silos, the fulfillment centers, the
26:59
Speaker 1: retail front end, Um, there are lots of ways to
27:02
Speaker 1: think about splitting these companies up, but I mean the
27:05
Speaker 1: reality is it's going to be years of litigation before
27:08
Speaker 1: anyone gets to that point. And the other reality is
27:10
Speaker 1: it's I mean, it's the intention, right, so you split
27:13
Speaker 1: them up in order for there to be more choice
27:15
Speaker 1: and for all companies to be better actors because they
27:18
Speaker 1: have you know, peers in their group and they're sort
27:20
Speaker 1: of forced to be better actors for their consumers. But
27:24
Speaker 1: that won't necessarily happen even if these companies are split up. No,
27:29
Speaker 1: I mean, you know, there are certain things you might
27:32
Speaker 1: expect if you split them up, probably more intense competition.
27:36
Speaker 1: I mean, the amount of profits that you know, Google, Facebook, etcetera.
27:40
Speaker 1: Make are quite impressive, and it's hard to justify those
27:45
Speaker 1: profits in any other way except that their quasi monopolies.
27:49
Speaker 1: So one issue might be, you know, they have to
27:51
Speaker 1: compete more on price, they have to think about different models. Um.
27:57
Speaker 1: I mean again, to some extent to Google, you are
28:00
Speaker 1: the product, I am the product, and they take our
28:04
Speaker 1: data for free. If they're in a more intense competition situation,
28:08
Speaker 1: they might actually have to think about, well, how do
28:10
Speaker 1: we pay people for data fascinating. My god. Yeah, well,
28:15
Speaker 1: I'm certainly god. They'll haven't give it away all of
28:18
Speaker 1: it already then, because there is still something left to buy.
28:21
Speaker 1: Our thanks to you very much, as Steven Stroiless, for
28:24
Speaker 1: joining us there, and we do hope you'll come back
28:26
Speaker 1: and take us through this process because no doubt, some
28:28
Speaker 1: of it will be easy to understand, but there will
28:31
Speaker 1: be a lot of it that won't be easy to
28:32
Speaker 1: understand for the layman. Steven Stiles is visiting professor at
28:35
Speaker 1: Princeton University's at Woodrow Wilson School of Public and International Affairs,
28:40
Speaker 1: joining us there. Do continue to listen to Bloomberg Markets
28:43
Speaker 1: throughout the afternoon. You will be taken through all of
28:47
Speaker 1: the Columbus Stay News if you like, Bloomberg Business Week
28:51
Speaker 1: taking place a little bit later on. My co host
28:53
Speaker 1: Baul Sweeney is on that show this week and next
28:57
Speaker 1: week Bloomberg Business Week filling in in the afternoons on
29:01
Speaker 1: Bloomberg Radio. Thanks for listening to Bloomberg Markets podcast. You
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Speaker 1: whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on
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Speaker 1: Twitter at Bonnie Quinn and I'm Baul Sweeney. I'm on
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Speaker 1: catch us worldwide at Bloomberg Radio