Latest / Bloomberg Intelligence / Why It's Time To Be More Optimistic On EM Assets: PGIM's Rajan

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Why It's Time To Be More Optimistic On EM Assets: PGIM's Rajan · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P M L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Global
• 0:34
  Speaker 1: trade wars, strength of the US dollar strikes in Argentina.
• 0:39
  Speaker 1: Let's talk about emerging markets with Arvin Rajan, Managing Director
• 0:42
  Speaker 1: and the head of Global and Macro at p JIM
• 0:45
  Speaker 1: Fixed Income, helping to manage more than seven hundred billion
• 0:49
  Speaker 1: dollars of customer assets. Are Vin a pleasure to have
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  Speaker 1: you with us. Give us your thoughts right now on
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  Speaker 1: what is going on with emerging market investments. Yeah, thank
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  Speaker 1: you for having me on TIM. It's it's a fascinating
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  Speaker 1: time and markets because um as often happens during periods
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  Speaker 1: of tightening global liquidity and global votility. Emerging markets have
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  Speaker 1: been taking it on the nose. So we have had
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  Speaker 1: nine consecutive weeks of outflows. We've had a bit of
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  Speaker 1: a slow lead, but there's not yet a total capitulation.
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  Speaker 1: In terms of emerging assets UM. In fact, you know,
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  Speaker 1: it's countries with which have current account deficits that have
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  Speaker 1: actually sold off the most, because those are the countries
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  Speaker 1: that benefited the most from YEO chasing inflows. We've had elections,
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  Speaker 1: you know, just now in Turkey, but looming in Mexico
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  Speaker 1: and Brazil. Trade wars obviously are taking a tool, and
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  Speaker 1: geopolitical issues and idiosyncratic problems in EM. But I want
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  Speaker 1: to tell you why I still like EM in spite
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  Speaker 1: of all of this, and it is somewhat of a
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  Speaker 1: falling knife. I don't think the sell off is necessarily
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  Speaker 1: over yet, but I see several bright spots here, so
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  Speaker 1: emerging market debt in particular, all right, So is it's
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  Speaker 1: idiosyncratic bright spots where you're looking at specific countries and
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  Speaker 1: UH specific companies and emerging markets or is it is
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  Speaker 1: it more broad than that. It's actually a bit of both.
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  Speaker 1: So the on the broader side, i'd say that the
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  Speaker 1: assets are now much cheaper, So we've had a five
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  Speaker 1: to eight percent sell off in depth hard currency as
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  Speaker 1: well as local currency, and I believe that the leverage
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  Speaker 1: cycle broadly speaking and emerging markets is not as scary
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  Speaker 1: as it was in the past, a more diverse group
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  Speaker 1: of investors today than than in the past, stronger reserves
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  Speaker 1: and strong commodities UM, and so far pretty healthy China.
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  Speaker 1: Having said that, obviously a China US trade war could
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  Speaker 1: challenge that last point. UM. What I'd say basically is
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  Speaker 1: that idiosyncratically, there are a couple of things going for
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  Speaker 1: e M. I mentioned commodities, and that helps the commodity exporters,
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  Speaker 1: but also there's policy responses to the volatility. So emerging
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  Speaker 1: market policy makers, I'm not sitting by idly as global
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  Speaker 1: markets are pushing their assets down. They're responding with interest
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  Speaker 1: rate increases and with macroeconomic. Macroeconomic responses that would strengthen
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  Speaker 1: these countries just have to break in there. Because we
• 3:33
  Speaker 1: saw that Argentina raised interest rates to three times in
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  Speaker 1: one week, and we saw Turkey try also to raise
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  Speaker 1: interest rates and markets weren't budging, they weren't buying it,
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  Speaker 1: they were not getting control over their currencies. A lot
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  Speaker 1: of people are speculating that in an emerging markets that
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  Speaker 1: some of these central banks have lost control. Do you disagree? Yes,
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  Speaker 1: I do disagree. I think that in certain individual cases,
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  Speaker 1: and I think you might have vargued for a for
• 4:02
  Speaker 1: a response that came sooner rather than later. So UM,
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  Speaker 1: it's true that I think, in the case of Turkey
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  Speaker 1: in particular, that the policy response has been lagging. It
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  Speaker 1: now remains to be seen whether after the election and
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  Speaker 1: Duane's confirmation for another term, that he uses that consolidated
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  Speaker 1: power to take more definitive economic reform actions and policy actions. Um.
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  Speaker 1: In Argentina's case, as you know, they have actually gone
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  Speaker 1: ahead and applied for a fifty billion dollar loan program
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  Speaker 1: with the I m F and other multilateral lenders. So
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  Speaker 1: I think that with that in their pocket and with
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  Speaker 1: the determination to do better on current account deficits, Argentina
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  Speaker 1: is um, you know, doing appropriate things. You know, from
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  Speaker 1: the policy standpoint, it is true that markets are never
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  Speaker 1: fully in sync with these markets are off often evaluating
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  Speaker 1: whether these policy responses are adequate at the moment that
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  Speaker 1: they're announced. But these panics when they are often in
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  Speaker 1: emerging markets and opportunity to buy cheap assets. And I
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  Speaker 1: think that this is not an exception to the twenty
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  Speaker 1: years so sell offs that we've seen in emerging markets
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  Speaker 1: over the last twenty years, each of which in many
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  Speaker 1: cases has mean reverted, you know, back to to higher
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  Speaker 1: prices in subsequent months. Are are there specific companies that
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  Speaker 1: you have on a list that when they fall in
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  Speaker 1: value you say, these we got to scoop up or
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  Speaker 1: we have to add to a bigger position. So UM,
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  Speaker 1: I can't speak about individual company investments, but I can
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  Speaker 1: tell you that there are different opportunity sets when it
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  Speaker 1: comes to hard currency, that the currency itself and local rates,
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  Speaker 1: and we tend to think about those three in separate mentions.
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  Speaker 1: And the fourth dimension is, of course corporate debt, and
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  Speaker 1: corporate debt has actually been least impacted of these four
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  Speaker 1: asset classes this year. I see the best opportunity set
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  Speaker 1: for investors in EM away from equities because we don't
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  Speaker 1: do equities, but we see that in hard currency debt
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  Speaker 1: because that has been taking it really on the nose,
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  Speaker 1: and it's because of investor related portfolio outflows. It is
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  Speaker 1: true that some of these countries have two large a
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  Speaker 1: percentage of their markets owned by foreigners, and I think
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  Speaker 1: that that's h exacerbated volatility. I'd say countries such as Mexico,
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  Speaker 1: which is about to have its election, Brazil where there's
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  Speaker 1: uncertainty around the election outcome Indonesia UM, where the ownership
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  Speaker 1: of foreign assets has created a lot of voulatility in
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  Speaker 1: spite of decent economic management. Our ex amples of places
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  Speaker 1: where we might find really good UM investments that are
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  Speaker 1: that are now presenting value, Just real quick, in about
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  Speaker 1: thirty seconds, I'm wondering a The m c I index
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  Speaker 1: of Developing nation currencies is down about half a percent today.
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  Speaker 1: It's its worst performance on a Monday since August twenty sixteen.
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  Speaker 1: Do you think that these e M currencies are poised
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  Speaker 1: to rally or do you think that they're going to
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  Speaker 1: deteriorate further as the dollar strengthens. I think tactically we
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  Speaker 1: are concerned about those currencies. I think that you know,
• 7:33
  Speaker 1: while the dollar is on a strengthening spree as it
• 7:36
  Speaker 1: is today, it is definitely a falling knife. UM. That said,
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  Speaker 1: I would say that if you took a somewhat longer horizon,
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  Speaker 1: like one to three years, that these currencies are actually
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  Speaker 1: looking starting to look really cheap, both on a nominal
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  Speaker 1: as well as on a real effective exchange rate basis UM.
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  Speaker 1: And the reason why is because global growth we expect
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  Speaker 1: will be come most sunchronized over the rest of this year. UM,
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  Speaker 1: we do think that inflation pressures will not really in
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  Speaker 1: the base case increased significantly. So that said is roughly
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  Speaker 1: priced in for eight and the rally and the dollar
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  Speaker 1: overall should therefore come to an end, and in turn,
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  Speaker 1: you know, the pull of capital out of emerging market
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  Speaker 1: countries should abate. Aranjan, thank you so much for being
• 8:25
  Speaker 1: with us. Arjen Managing director and head of Global and
• 8:28
  Speaker 1: Macro at PGIM Fixed Income, talking about why he likes
• 8:32
  Speaker 1: emerging markets fixed income. From here, could the United States
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  Speaker 1: prevent Chinese companies from investing in US companies and what
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  Speaker 1: could be the effects. Brooks Southerland, Bloomberg opinion writer for
• 9:00
  Speaker 1: Deals and Industrials, joins us now about potential curbs on
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  Speaker 1: Chinese investments. Brooke, what have you learned in terms of
• 9:08
  Speaker 1: detail about what the president is proposing? So? I think
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  Speaker 1: the most significant thing here is he's looking to use
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  Speaker 1: this sort of antiquated and not very commonly employed tactic
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  Speaker 1: of invoking a national economic emergency to justify stricter controls
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  Speaker 1: on Chinese investments in the US. And then they're also
• 9:28
  Speaker 1: looking at export controls of key US technologies. Now, I
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  Speaker 1: will note it's not like Chinese companies have been making
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  Speaker 1: a ton of takeovers in the US. As it is,
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  Speaker 1: you know, there's already a significant deterrent in place, given
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  Speaker 1: how the number of deals that Cyphius has already cracked
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  Speaker 1: down upon and sort of the rhetoric coming out of
• 9:47
  Speaker 1: the Trump administration, we've seen deal activity really slow to
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  Speaker 1: a trickle. And that's not just takeovers, that's investments, that's
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  Speaker 1: joint ventures. You're just really not seeing that deal flow.
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  Speaker 1: So does that rise to the level of a national
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  Speaker 1: economic emergency? I would argue know that there's already a
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  Speaker 1: deterrent in place for these deals. So there is a
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  Speaker 1: real question about how President Trump is going about implementing
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  Speaker 1: some of these directives, rules, orders, and I'm not sure
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  Speaker 1: exactly how they will be implemented. But then there's a
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  Speaker 1: question of what they mean. I mean, investments is pretty
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  Speaker 1: ambiguous and uh, you know, really important sort of central
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  Speaker 1: areas to the US. What does what does that mean?
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  Speaker 1: I mean, what break this down for US? What are
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  Speaker 1: we talking about here? Well, the hard thing about national
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  Speaker 1: security is, as we've seen, the Trump administration has really
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  Speaker 1: used this to justify all kinds of things that are
• 10:40
  Speaker 1: not actually national security. Risk, Like, does a car imported
• 10:44
  Speaker 1: from Germany really pose a dangered America and its citizens? No,
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  Speaker 1: But there's just so much flexibility, so much latitude once
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  Speaker 1: you start talking about national security, that you could really
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  Speaker 1: be talking about a very broad swath of the economy.
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  Speaker 1: So going back to this idea of export controls, the
• 11:00
  Speaker 1: Wall Street Journal has reported this would be targeting technologies
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  Speaker 1: that China is looking to uh, you know, elevate through
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  Speaker 1: its initiative. That includes aerospace, that includes clean energy, cars,
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  Speaker 1: that include semiconductors, advanced materials. I mean, you start talking
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  Speaker 1: about this, you're really a number of companies can be impacted,
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  Speaker 1: and it's not exactly clear how this would work, but
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  Speaker 1: even taking away a decent chunk of any of these
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  Speaker 1: companies businesses to China would be very painful, especially for
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  Speaker 1: somebody like Boeing well and bowing shares down today. Right,
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  Speaker 1: So I have to wonder just to push back a
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  Speaker 1: little bit and play devil's advocate here. You know, some
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  Speaker 1: may argue China has been stealing intellectual property from the
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  Speaker 1: US for a long time. It entices companies to come
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  Speaker 1: over to that nation and then basically copies the different
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  Speaker 1: trademarks that they have and then pumps out their own stuff.
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  Speaker 1: And this is President Trump trying to curtail that activity
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  Speaker 1: and say, you guys can't do that ahead of your
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  Speaker 1: Belt and Road initiative. Uh, you know, five understood. But
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  Speaker 1: what was interesting to me about this is it's not
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  Speaker 1: going after deals that have already been done. It's not
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  Speaker 1: seeking to undo transactions. It would just be limiting future investment.
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  Speaker 1: So at that point, these investments, these joint ventures that
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  Speaker 1: exists that have supposedly been facilitating this transfer of US
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  Speaker 1: technology to Chinese firms, technically those relationships would be allowed
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  Speaker 1: to continue. And I don't know that you know, limiting
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  Speaker 1: US exports of technologies is necessarily going to have the
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  Speaker 1: impact that's desired. You start broadening this out and making
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  Speaker 1: this such a wide definition of key US technology, I
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  Speaker 1: think that may ultimately end up being more painful for
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  Speaker 1: US companies. I mean going back to Boeing, so they're
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  Speaker 1: really trying to ramp up their China investment. That's a
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  Speaker 1: huge market for them, a huge source of growth. But
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  Speaker 1: China is already developing its own domestic plane manufacturer that
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  Speaker 1: could be a real threat to Boeing. As it is,
• 12:52
  Speaker 1: you limit Boeing's exports ahead of that. I mean, you're
• 12:54
  Speaker 1: talking about a really potentially painful loss of market share. Okay,
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  Speaker 1: But just to continue Leasa's point, I mean, if the
• 13:01
  Speaker 1: United States is going to secure its UH physical security
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  Speaker 1: and military security, um, can it be argued that you
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  Speaker 1: can't have it both ways and that you're going to
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  Speaker 1: have to sacrifice profits in order to protect the national
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  Speaker 1: interests of the country. And that would mean limiting the
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  Speaker 1: transfer of technology that is sensitive and that could be
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  Speaker 1: used eventually to supplant US companies such as Boeing like
• 13:32
  Speaker 1: you just described, and that what is happening now is
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  Speaker 1: something that while it may be quote too late, it
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  Speaker 1: is at least an effort on the part of the
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  Speaker 1: administration to protect the national security interests of the nation.
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  Speaker 1: But they're also trying to make the argument that this
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  Speaker 1: makes America more hospitable for businesses. They're trying to sales.
• 13:55
  Speaker 1: You know, that's the marketing. That may be the marketing
• 13:58
  Speaker 1: around it, but but in terms of the actual you know,
• 14:01
  Speaker 1: being able to transfer military technology or technology that could
• 14:04
  Speaker 1: be used in a military setting, or anything that's sensitive that,
• 14:10
  Speaker 1: as Lisa said, is pretty well known that Chinese companies
• 14:14
  Speaker 1: in many companies can just copy sure, and I think
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  Speaker 1: there's a valid argument for paying close attention to that
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  Speaker 1: and trying to limit those instances when they do happen.
• 14:22
  Speaker 1: I will, you know, point out that CIFIAS has already
• 14:24
  Speaker 1: been rather active on this front. President Obama prevented a
• 14:29
  Speaker 1: Chinese own company from building a wind farm because it
• 14:31
  Speaker 1: was too close to a Navy base in Ohio. So
• 14:34
  Speaker 1: there are already these considerations underplay. There's a bill in
• 14:37
  Speaker 1: front of Congress right now that would tighten cifius is
• 14:40
  Speaker 1: scrutiny of these investments, give them more ammunition to go
• 14:44
  Speaker 1: after these types of deals in a broader range of
• 14:46
  Speaker 1: industries and a broader range of scenarios. I would argue
• 14:50
  Speaker 1: that that's probably a more powerful way to actually curb
• 14:55
  Speaker 1: this than just invoking national economic emergencies and taking a
• 14:59
  Speaker 1: unit lateral approach to this. Brook Sutherland, Bloomberg, Opinion, Deals
• 15:03
  Speaker 1: in Industrial Calumnists. Thank you so much, as always for
• 15:05
  Speaker 1: your insights. How do small towns attract bigger businesses to
• 15:27
  Speaker 1: their shores or to their lands in order to drive
• 15:30
  Speaker 1: up economic activity. This is the question at the heart
• 15:33
  Speaker 1: of an article that Craig Torus wrote that I found
• 15:35
  Speaker 1: truly compelling. Craig tourists, economy and Federal Reserve reporter for
• 15:39
  Speaker 1: Bloomberg News. He joins us now from our Bloomberg Unit
• 15:41
  Speaker 1: and One Studios in d C. Craig talk to us
• 15:44
  Speaker 1: about Greenville and why you decided to focus in on
• 15:48
  Speaker 1: this particular city for a story. Okay, so high Lisa
• 15:53
  Speaker 1: Hi pim Uh I worked with one of our data scientists,
• 15:57
  Speaker 1: Katerina Sa, and we start looking at where has new
• 16:02
  Speaker 1: business growth occurred in the context and of overall slumping
• 16:06
  Speaker 1: new business growth, and we found that Greenville stood out
• 16:09
  Speaker 1: among regional piers and was kind of keeping up with
• 16:12
  Speaker 1: the national average and even kind of competing with bigger
• 16:16
  Speaker 1: cities like Boston in terms of new business activity. So
• 16:21
  Speaker 1: we went down there to take a look. So what
• 16:24
  Speaker 1: did you find. In addition to Michelin which has the
• 16:28
  Speaker 1: North American headquarters, they're also Lockeed Martin's got a big
• 16:32
  Speaker 1: presence because the old Donaldson Air Force Base is now
• 16:36
  Speaker 1: a technology center. Also General Electric has has business operations there.
• 16:41
  Speaker 1: So what we found was a community and I mean
• 16:45
  Speaker 1: everybody very focused on startups. Um they could be technology startups,
• 16:51
  Speaker 1: they could be biotech startups. They could be companies like
• 16:55
  Speaker 1: Boyd Cycling, which makes high end road bike wheels in
• 16:58
  Speaker 1: a warehouse on the side out of town. As long
• 17:01
  Speaker 1: as it was new and innovative. Both the civic leaders
• 17:05
  Speaker 1: in Greenville and other businessmen were very interested. And to me,
• 17:11
  Speaker 1: Pim and Lisa, the key ingredient was a big Angel
• 17:14
  Speaker 1: network willing to fund new ideas right there in a
• 17:18
  Speaker 1: corner of South Carolina. So here's what I'm struggling with.
• 17:23
  Speaker 1: I feel like that's a cultural issue, and I'm wondering
• 17:27
  Speaker 1: how many other small towns have the Angel money to
• 17:31
  Speaker 1: pour into this, or could they do something similar simply
• 17:34
  Speaker 1: with tax cuts and other benefits. I'm glad you raised that.
• 17:38
  Speaker 1: Probably U, I and most people listening to this have
• 17:42
  Speaker 1: driven through a city, no matter what state, and asked
• 17:44
  Speaker 1: ourselves what happened here? And as you know, this is
• 17:48
  Speaker 1: shaping politics and policies as we put in place tariffs
• 17:52
  Speaker 1: and immigration. So what can they do? In the story,
• 17:56
  Speaker 1: we visited Danville, Virginia, which suffered tremen and this loss
• 18:00
  Speaker 1: through exitive textile and tobacco. And I'm glad to use
• 18:04
  Speaker 1: the word cultural, Lisa, because that's what they talk about
• 18:08
  Speaker 1: we need cultural change. How do we bring innovators to
• 18:12
  Speaker 1: this city. It's not easy. Incentives play a big role,
• 18:17
  Speaker 1: for sure, But instead of looking for one big answer
• 18:21
  Speaker 1: like Amazon HQ two, what they really want are small
• 18:26
  Speaker 1: cells of innovation that feed on each other. Well, what's
• 18:30
  Speaker 1: an example, I mean, give us tell us some of
• 18:32
  Speaker 1: the startups and how it works, because uh, you know,
• 18:36
  Speaker 1: you talk about the culture. It's one thing to have
• 18:39
  Speaker 1: the culture, it's another thing to have the money to
• 18:41
  Speaker 1: actually fund these things. Okay, So one of the one
• 18:44
  Speaker 1: of the secret weapons that Danville has is the region
• 18:48
  Speaker 1: sold off a health system, giving them about a quarter
• 18:52
  Speaker 1: billion dollars to start putting incentives into community development. And
• 18:57
  Speaker 1: I found the people who run it um very interesting.
• 19:01
  Speaker 1: So obviously when you have that much money and that
• 19:05
  Speaker 1: sort of corner of the state, you get a lot
• 19:07
  Speaker 1: of asks. And they don't give money just to anybody.
• 19:11
  Speaker 1: They give money to change agents that's there. That's their standard,
• 19:15
  Speaker 1: and a change agent could be a social change agent.
• 19:18
  Speaker 1: Like they built a brand new y m c A
• 19:21
  Speaker 1: right on the river. It was the first building on
• 19:24
  Speaker 1: the riverfront and maybe years and like they told me,
• 19:29
  Speaker 1: it's very racially integrated. Which is an important achievement down
• 19:34
  Speaker 1: there in terms of business. Uh. What they're doing is
• 19:39
  Speaker 1: trying to convince UM high tech manufacturers that their community
• 19:45
  Speaker 1: college has a special program that a third year program
• 19:49
  Speaker 1: that imitates workplace environments with cut topics like conflict resolution,
• 19:54
  Speaker 1: and they can provide the human capital for that kind
• 19:57
  Speaker 1: of operation. And they've had a cup bull of successes
• 20:00
  Speaker 1: recently Kaio, Sarah and a biotech company called Panaceutics. Are
• 20:07
  Speaker 1: there any other cities like this? A lot of cities
• 20:11
  Speaker 1: are visiting Greenville trying to find out what the secret
• 20:16
  Speaker 1: sauces UM. You've probably heard of places like Boise and UM.
• 20:22
  Speaker 1: I think uh Nashville as having some success with startups. UM.
• 20:30
  Speaker 1: I'm glad you used the word city because it does
• 20:32
  Speaker 1: take single minded civic focus that this is what we
• 20:36
  Speaker 1: want to do. We don't want to just create a
• 20:38
  Speaker 1: number of low skilled jobs. We want high skill, high
• 20:41
  Speaker 1: talent jobs. And if I may, I'm going to give
• 20:45
  Speaker 1: you an example. Okay, there's a company in Greenville called
• 20:48
  Speaker 1: kaya Tech. UM. It's a biotech company. They're doing something
• 20:53
  Speaker 1: very disruptive. They're testing cancer drugs on live patient cells.
• 20:59
  Speaker 1: The company was welcomed into the local healthcare system. Their
• 21:03
  Speaker 1: lab sits in the cancer ward of Greenville Hospital. The
• 21:08
  Speaker 1: state is both an equity partner and a grant tea
• 21:12
  Speaker 1: to this company. And you gotta ask yourself, why did
• 21:15
  Speaker 1: they did do this? This is not going to generate
• 21:18
  Speaker 1: hundreds of jobs. It's a long term bet that this
• 21:21
  Speaker 1: disruptive technology well somehow spin off even more companies and
• 21:26
  Speaker 1: more jobs. I found that very progressive. Thanks very much,
• 21:30
  Speaker 1: very interesting story I recommended to all of our listeners.
• 21:33
  Speaker 1: Craig Tours is our Economy Federal Reserve reporter for Bloomberg News.
• 21:37
  Speaker 1: You can follow Craig on Twitter at c torres Reporter
• 21:41
  Speaker 1: and you can check out his story on Bloomberg dot com.
• 22:00
  Speaker 1: Just minutes ago, a Treasury Secretary Stephen Manuchin tweeted out
• 22:03
  Speaker 1: on behalf of President Donald Trump, the stories on investment
• 22:07
  Speaker 1: restrictions in Bloomberg and Wall Street Journal are false, fake news.
• 22:11
  Speaker 1: The leaker either doesn't exist or do the subject very well.
• 22:15
  Speaker 1: Statement will be out not specific to China, but to
• 22:18
  Speaker 1: all countries that are trying to steal our technology. We
• 22:22
  Speaker 1: will bring you more as we get it, But this
• 22:24
  Speaker 1: of course is referring to the to the topic that
• 22:27
  Speaker 1: we were just talking about the last segment about these
• 22:30
  Speaker 1: restrictions that President Trump plans to put out there under
• 22:34
  Speaker 1: using or incurring the scipious rule to do it. We
• 22:38
  Speaker 1: will bring you more right now. I want to bring
• 22:40
  Speaker 1: in Peter Kenny, founder and owner of Strategic Board Solutions,
• 22:43
  Speaker 1: also founder and owner of Kenny and Co. Coming to
• 22:47
  Speaker 1: us from New Jersey. Peter, Uh, you know, this is
• 22:50
  Speaker 1: just just one little snapshot of the back and forth
• 22:53
  Speaker 1: that we keep getting with respect to trade. Is there
• 22:56
  Speaker 1: anything that we've gotten so far that would cause you
• 23:00
  Speaker 1: to change your recommendation as to what investors ought to
• 23:03
  Speaker 1: be buying or selling right now. Because of the lack
• 23:07
  Speaker 1: of clarity, and because of the number of variables, and
• 23:10
  Speaker 1: we're talking really large, large global variables, it's difficult to
• 23:16
  Speaker 1: say anything other than be cautious. And we're seeing that
• 23:21
  Speaker 1: in the flattening Yelker. We're seeing that in the tenure today.
• 23:26
  Speaker 1: For example, I mean treating a two point eight seven yield.
• 23:30
  Speaker 1: That's telling us that investors are cautious all the one second.
• 23:33
  Speaker 1: I'm sorry to break in here, but the idea of
• 23:35
  Speaker 1: caution at a time when you are seeing inflation pickup
• 23:38
  Speaker 1: and you are seeing the Federal Reserve hiking rates isn't clear.
• 23:42
  Speaker 1: What does expressing caution mean in markets today? Well, what
• 23:45
  Speaker 1: it's what we're seeing is a flattening Yelk curve and
• 23:49
  Speaker 1: the fact that investors are looking to hedge their bets.
• 23:52
  Speaker 1: We're seeing your to date return on the SMP five,
• 23:55
  Speaker 1: the Dow Jones, which is largely flat to negative. We
• 23:58
  Speaker 1: have seen that performance by the NASDAC. But there's clearly
• 24:01
  Speaker 1: caution in the market. And that is in spite of
• 24:03
  Speaker 1: what you just you know, just mentioned, which is clearly
• 24:06
  Speaker 1: the fad is going to be raising rates as many
• 24:08
  Speaker 1: as four times over the next twelve months. So we're
• 24:11
  Speaker 1: at a it's a very odd point in time for
• 24:14
  Speaker 1: markets and investors because we are seeing really great earnings,
• 24:17
  Speaker 1: great guidance, rising rates, healthy inflation, and yet we're seeing
• 24:23
  Speaker 1: very little in the way of positive traction for equity. So,
• 24:26
  Speaker 1: I mean, that's a conundrum. The bottom line is caution
• 24:30
  Speaker 1: seems to be ruling the day, and we're seeing that
• 24:32
  Speaker 1: in the treasure yields and we're seeing that in equity prices. Well, Peter,
• 24:36
  Speaker 1: is this the time to be cautious when everybody else
• 24:39
  Speaker 1: is I mean, don't you want to be buying when
• 24:41
  Speaker 1: people are not interested in buying and you want to sell. Yeah,
• 24:46
  Speaker 1: so what would you be looking at right now? All right?
• 24:48
  Speaker 1: So I mean, if you don't want to take too
• 24:50
  Speaker 1: much of a chance, what do you go out and buy? Well,
• 24:53
  Speaker 1: you know my from my perspective, we're going to continue
• 24:57
  Speaker 1: to see some really solid earnings and great economic data.
• 25:02
  Speaker 1: Those two functions are the drivers of equity prices, and
• 25:07
  Speaker 1: as a result, I do think that the bias remains very,
• 25:10
  Speaker 1: very positive. As a result of that, I still like
• 25:13
  Speaker 1: the financials, primarily because of the fact that we're going
• 25:16
  Speaker 1: to see rising rates and that related to expansion of
• 25:18
  Speaker 1: an interest margin. I also like to see homebuilders in
• 25:22
  Speaker 1: spite of the fact we're seeing some some asset bubbles there. Um.
• 25:25
  Speaker 1: I think that there's the demand for housing is absolutely
• 25:28
  Speaker 1: through the roof. We're seeing that in the dislocation and pricing.
• 25:32
  Speaker 1: But housing and financials continue to be and will be
• 25:36
  Speaker 1: in my opinion second half and well into next year.
• 25:38
  Speaker 1: Leaders Peter, how shall we think about oil because amid
• 25:42
  Speaker 1: all of the trade talk, we're getting the OPEC agreement
• 25:46
  Speaker 1: to raise output, but that is sort of offset by
• 25:50
  Speaker 1: the issues that we are seeing in Venezuela with oil
• 25:53
  Speaker 1: output really dramatically declining there, and of course the tensions
• 25:56
  Speaker 1: rising in Libya, and then I ran, I mean, how
• 25:58
  Speaker 1: are you thinking about the direct prices? Super super interesting, UM,
• 26:03
  Speaker 1: So you know, crude US is just such an interesting
• 26:07
  Speaker 1: topic because it's so topical relative to economic growth. The
• 26:11
  Speaker 1: Opaque announcement on Friday was frankly, yes, a cut, but
• 26:16
  Speaker 1: it was so nominal and so confusing that it really
• 26:20
  Speaker 1: didn't act to allay the fears of rising of rising
• 26:23
  Speaker 1: energy prices. So we saw that huge spike up five
• 26:26
  Speaker 1: point over five in one day, best one day performance
• 26:29
  Speaker 1: for the for w t I CREWDE in six months.
• 26:33
  Speaker 1: Today we're seeing a largely flat move marginally fractionally higher.
• 26:38
  Speaker 1: The bottom line is on Saturday the Opaque Minister UM
• 26:44
  Speaker 1: from Saudi Arabia said we're going to do whatever it
• 26:46
  Speaker 1: takes to keep energy and oil prices stable, which is
• 26:50
  Speaker 1: an indication that there's more room for accommodation, an indication
• 26:54
  Speaker 1: that there's more room for production increases, which is why
• 26:58
  Speaker 1: we're not seeing any followed through from Friday's move higher.
• 27:01
  Speaker 1: I do think that we're probably very close to a
• 27:03
  Speaker 1: new turn top in CREWDE prices, But I think the
• 27:07
  Speaker 1: downside is limited because of the global growth, the global demand,
• 27:11
  Speaker 1: and because of those three factors that you just mentioned.
• 27:14
  Speaker 1: Venezuelle as implosion, concerns over Iran and um Iraq, met
• 27:20
  Speaker 1: the whole Middle East, you know, matrix, and the fact
• 27:23
  Speaker 1: that there really is an awful lot of instability in
• 27:26
  Speaker 1: terms of the producers and what they can produce. For example,
• 27:29
  Speaker 1: there's really only three major Opeq and non Opeque aligned
• 27:34
  Speaker 1: producers who can really move on increasing production. They can substantially,
• 27:40
  Speaker 1: so that matters a lot. But many of the OPEC
• 27:42
  Speaker 1: members really are at full production right now. All right,
• 27:45
  Speaker 1: we gotta leave it there. I want to thank you
• 27:47
  Speaker 1: very much for joining us. Peter Kenny, founder a strategic
• 27:50
  Speaker 1: aboard A Solutions that talking about the current investment climate,
• 27:54
  Speaker 1: and uh here joining us now to talk about the
• 27:58
  Speaker 1: current tweeting environment. When it comes to Treasury Secretary Stephen
• 28:01
  Speaker 1: Manuchin is our own Salija Motion who co wrote the
• 28:05
  Speaker 1: story about the US planning curbs on Chinese investments, this
• 28:09
  Speaker 1: citing a security risks as the reason. Selia, what do
• 28:13
  Speaker 1: you make of the Treasury Secretary's response to this reporting? Yeah,
• 28:17
  Speaker 1: you know, he always speaks very very carefully. UM. I
• 28:20
  Speaker 1: think it's interesting that he said quote the statement will
• 28:26
  Speaker 1: not be specific to China. So there's a statement and
• 28:30
  Speaker 1: then there's a lot of other matter that would go.
• 28:32
  Speaker 1: You know, there's a public side of any report and
• 28:34
  Speaker 1: there's a private side. So our sources have told us
• 28:38
  Speaker 1: that the research that's being done in the administration has
• 28:42
  Speaker 1: to do with China. We have White House, the top
• 28:45
  Speaker 1: economics sorry, top trade advisor Pierre Navarro, who has laid
• 28:49
  Speaker 1: the groundwork for such actions, specifically towards China, with a
• 28:52
  Speaker 1: thirty six page report that he put out last week
• 28:55
  Speaker 1: that is all about China and China's economics aggression. Uh.
• 28:59
  Speaker 1: So I think Manuchia using the opportunity to refer just
• 29:01
  Speaker 1: to his statement, uh and maybe not directly to what
• 29:05
  Speaker 1: goes behind that. Just real quick here, you've got about
• 29:07
  Speaker 1: a mint left. Is this unusual for Secretary Treasury Secretary
• 29:12
  Speaker 1: Munition to take to Twitter to respond to something? He
• 29:16
  Speaker 1: does follow in the President's footstep with a lot of
• 29:19
  Speaker 1: these things, and not footstep, but take lead from him.
• 29:21
  Speaker 1: It is rare for him to call out a specific
• 29:24
  Speaker 1: media report at the same time he is probably hearing
• 29:27
  Speaker 1: from investors from market participants and even Chinese officials for
• 29:31
  Speaker 1: more details, and so I actually wonder if part of
• 29:34
  Speaker 1: the message is to go to allies or specifically to
• 29:37
  Speaker 1: China or markets on this. We will of course be
• 29:39
  Speaker 1: waiting to hear more news from the Treasury Secretary and
• 29:43
  Speaker 1: look forward to getting that the news release. I want
• 29:45
  Speaker 1: to thank you very much Selia Molson for your story
• 29:49
  Speaker 1: well worth reading on Bloomberg dot com Treasury Department planning
• 29:54
  Speaker 1: to heighten security of Chinese investments in sensitive US industries
• 29:58
  Speaker 1: under an emerging see law, and we'd wait to hear
• 30:03
  Speaker 1: if there's any update on that. Much appreciated for your reporting.
• 30:08
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 30:11
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 30:15
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 30:18
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 30:22
  Speaker 1: It's one before the podcast. You can always catch us
• 30:25
  Speaker 1: worldwide on Bloomberg Radio