Latest / Bloomberg Intelligence / CalSTRS Likes Real Estate and PE, Cautious On Equities

Transcript

CalSTRS Likes Real Estate and PE, Cautious On Equities · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul Swinge you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits, each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. This is the song that we
• 0:31
  Speaker 1: have for the one, the only, the Chris Almen, chief
• 0:35
  Speaker 1: investment officer at Holster's Investments, which is the second biggest
• 0:41
  Speaker 1: public pension in the United States. I love the little
• 0:45
  Speaker 1: bicycle bell at the end. Of course, we use that
• 0:47
  Speaker 1: song because you ride your bike to work every day,
• 0:50
  Speaker 1: uh and listen to the show while you do that,
• 0:52
  Speaker 1: which I absolutely love you still riding your bike. It's
• 0:55
  Speaker 1: been a bit too cold and way too rainy, so
• 0:58
  Speaker 1: but yes, I ride it at lunch as often as
• 0:59
  Speaker 1: I can, and I still listen to the show regularly.
• 1:02
  Speaker 1: All right, So talking about investments, because you do oversee
• 1:07
  Speaker 1: more than two or billion dollars of assets for a
• 1:10
  Speaker 1: number of different pensions, a number of different retired groups
• 1:14
  Speaker 1: in California. Where are we right now. I mean, it
• 1:17
  Speaker 1: seems like people are getting really pessimistic if you look
• 1:20
  Speaker 1: at the bond market, But if you look at stocks,
• 1:22
  Speaker 1: we just had an incredible first quarter. What do you
• 1:25
  Speaker 1: make of this? Well, and I've been very clear, I
• 1:28
  Speaker 1: think people need to start taking their clue from the
• 1:30
  Speaker 1: bond market. I don't think it should be as overly
• 1:32
  Speaker 1: pessimistic as it is. And your listeners are educated, they
• 1:36
  Speaker 1: get it. The yield curve is not inverted. Let's look
• 1:39
  Speaker 1: at twos to thirties. Don't bother me with twos to tens.
• 1:43
  Speaker 1: The fact that the curve has a slump in the
• 1:45
  Speaker 1: middle of it, that's too bad. But if the whole
• 1:47
  Speaker 1: curve got inverted, then I would be worried. I think
• 1:50
  Speaker 1: interest rates need to be more focused on. The economy
• 1:52
  Speaker 1: is okay. We just came off a very very cold winter.
• 1:55
  Speaker 1: People forget the the cyclone bomb and all the craziest
• 2:00
  Speaker 1: off that went on this last January and February. So
• 2:03
  Speaker 1: the economy should be a little bit slow in the
• 2:05
  Speaker 1: first quarter, as it has been for the last three years. Well,
• 2:08
  Speaker 1: the market seems to be discounting that the Fed's next
• 2:10
  Speaker 1: move will be a rate cut, but if you're saying
• 2:13
  Speaker 1: that you're you think the economy is generally in good shape,
• 2:16
  Speaker 1: you don't see that. I think the Fed should be
• 2:19
  Speaker 1: and should constantly say they are data dependent, not a headline.
• 2:23
  Speaker 1: They have been for decades. But Jerome Powell's got to
• 2:26
  Speaker 1: learn his own voice and the power of that he's
• 2:28
  Speaker 1: had and moving that market, and he needs to be
• 2:31
  Speaker 1: much more cautious and need to be data dependent. The
• 2:34
  Speaker 1: bomb market is kind of anticipating in ease, which I
• 2:37
  Speaker 1: think is a little over extending. I think they're getting
• 2:39
  Speaker 1: too far ahead of themselves. They're over the handlebars and
• 2:42
  Speaker 1: bike terms. So they need to really back up and
• 2:45
  Speaker 1: and look at the data. Look at data, Look at
• 2:47
  Speaker 1: where we are in the first quarter. The Fed may
• 2:50
  Speaker 1: well end up tightening at the latter half of the year,
• 2:53
  Speaker 1: but that's a long time from now, all right, So
• 2:55
  Speaker 1: let's talk about how that feeds into your investment thesis
• 2:57
  Speaker 1: going forward. Calister's the California State Teacher's retirement system. I
• 3:02
  Speaker 1: believe broke even for the fiscal year nineteen. Is that correct?
• 3:07
  Speaker 1: We had a small lost down three percent um on
• 3:10
  Speaker 1: a calendar year. But I'm looking at fiscal years and
• 3:13
  Speaker 1: I'm looking at a thirty year time period, so we're
• 3:15
  Speaker 1: doing okay over thirty years. So are you adjusting though
• 3:19
  Speaker 1: anything in terms of allocations for We've been very defensive
• 3:25
  Speaker 1: at the start of even a year ago. In in July,
• 3:28
  Speaker 1: we started to get too defensive, and obviously the markets
• 3:31
  Speaker 1: rallied in in August, but then we were positioned correctly
• 3:34
  Speaker 1: when you look at December. Such is life as a
• 3:37
  Speaker 1: long term investor in the markets. It's a roller coaster
• 3:39
  Speaker 1: and you never know your exact position. But right now
• 3:42
  Speaker 1: we're pretty neutral. So I'm not extending long in many areas,
• 3:46
  Speaker 1: and I'm also not being underweight in many areas. I'm
• 3:49
  Speaker 1: a little cautious on equities. So we're right at the
• 3:52
  Speaker 1: benchmark and a smidge under and we're long long maturity
• 3:56
  Speaker 1: assets like real estate private equity. So it's sort of
• 4:00
  Speaker 1: interesting that you said that that's where I was going
• 4:02
  Speaker 1: to go. There was a JP Morgan survey recently talking
• 4:05
  Speaker 1: about how you know. They basically surveyed a bunch of
• 4:08
  Speaker 1: institutional investors. One third of them is that they plan
• 4:11
  Speaker 1: to increase their allocations to hedge funds up from a
• 4:14
  Speaker 1: minuscule amount the prior year. Are you in that camp.
• 4:18
  Speaker 1: Are you increasing allocations to hedge funds. No, UM, we
• 4:21
  Speaker 1: don't consider hedge funds and asset class. We look at
• 4:24
  Speaker 1: them as as they are there twenty two very disparate
• 4:27
  Speaker 1: investment strategies. Keep in mind, to me, a hedge fund
• 4:31
  Speaker 1: is a legal contract, a structure, the vehicle underneath it is.
• 4:35
  Speaker 1: What you care about is what is their underlying strategy.
• 4:37
  Speaker 1: And I think what they're saying is it's tough to
• 4:40
  Speaker 1: be long and asset class right now, so they want
• 4:42
  Speaker 1: to be in a trading type of vehicle. They can
• 4:45
  Speaker 1: be a bit more nimble and a bit more reactive
• 4:47
  Speaker 1: to the world. Between Breggsit, what's going on here in Washington,
• 4:51
  Speaker 1: d C. Fast and slow economic numbers out of China,
• 4:55
  Speaker 1: it's tough to figure out where there should be in stocks, bonds, currencies,
• 4:59
  Speaker 1: and where I should be the world. It's interesting that
• 5:02
  Speaker 1: you talked about that this you know, the volatility we've
• 5:04
  Speaker 1: seen over the last you know, six months. I mean,
• 5:06
  Speaker 1: so if you're an equity investor looking at the sp
• 5:08
  Speaker 1: up this this year, you could say, well, I'm done, Okay,
• 5:12
  Speaker 1: I've had my performance. I'm gonna go away. However, if
• 5:14
  Speaker 1: you kind of look at it relatives to what happened
• 5:17
  Speaker 1: in December. We're just kind of getting back to almost
• 5:19
  Speaker 1: where we were. So there's cases for the bulls and bears,
• 5:22
  Speaker 1: but it sounds like you're a little bit more on
• 5:23
  Speaker 1: the conservative side from an equities perspective. Yeah, Paul, we're
• 5:27
  Speaker 1: number one. We're investors, not traders. So I wish I
• 5:30
  Speaker 1: could say I could get out of the market, but
• 5:32
  Speaker 1: that is just never gonna happen. We're going to be
• 5:34
  Speaker 1: invested in stocks as long as they're public school teachers
• 5:37
  Speaker 1: in California. That I try and say that to your people,
• 5:39
  Speaker 1: it's we're talking generations that will be along the US
• 5:42
  Speaker 1: equity market. So from our perspective, um, it really has
• 5:46
  Speaker 1: been a sideways market, and it's been a choppy one.
• 5:49
  Speaker 1: So it's tough for even the momentum strategies to make
• 5:52
  Speaker 1: money in this kind of a market, since you're swinging
• 5:54
  Speaker 1: up and down eight percent sometimes in just a two
• 5:56
  Speaker 1: month period. We're gonna be fairly flat to the US
• 6:00
  Speaker 1: equity market right on our benchmark. We're a little bit
• 6:02
  Speaker 1: underweight global equity because we're so worried about Brexit and
• 6:06
  Speaker 1: questioning Japan, and then we're gonna be looking around the world.
• 6:09
  Speaker 1: Emerging markets is where the value is, but it's been
• 6:13
  Speaker 1: so tough to go in, and it really is a
• 6:15
  Speaker 1: question about your confidence in China and their economy. It
• 6:18
  Speaker 1: looks like it's dialing back up and starting to grow,
• 6:20
  Speaker 1: which is a good sign for the emerging markets. But
• 6:23
  Speaker 1: even for a fund our size, it's tough to be long,
• 6:26
  Speaker 1: very far in the emerging markets. You said earlier that
• 6:29
  Speaker 1: you like real estate and private equity. Where in particular
• 6:33
  Speaker 1: are you seeing opportunities in real estate? Well, I like
• 6:36
  Speaker 1: real estate because I think it's gonna hold its values. UM.
• 6:39
  Speaker 1: I like occupied buildings that have solid lease and solid
• 6:42
  Speaker 1: tenants because it gives us were good cash flow. Um.
• 6:47
  Speaker 1: We have owned some buildings where we work actually exists. Um.
• 6:51
  Speaker 1: But you want diversified tenant base. That's the key, and
• 6:54
  Speaker 1: you look at it. Manhattan, the Gateway cities, San Francisco,
• 6:58
  Speaker 1: Los Angeles, Chicago, Goo, even Denver, Washington, d C have
• 7:03
  Speaker 1: held in there and their value. And then obviously the
• 7:05
  Speaker 1: bills people love to talk about Nashville. UM, talk to
• 7:11
  Speaker 1: the real estate people. They've got acronyms for everything. I'm sure,
• 7:14
  Speaker 1: but but even Austin, those kind of markets are holding
• 7:17
  Speaker 1: in there, and I'm not looking for a lot of
• 7:20
  Speaker 1: capital appreciation. But what I'm looking for is steady cash flow.
• 7:23
  Speaker 1: That's what we really get out of our real estate.
• 7:25
  Speaker 1: So I think about high yielding dividends stocks and there's
• 7:28
  Speaker 1: the value. And also real estate's very static. It doesn't
• 7:30
  Speaker 1: move in price every day like equities. Interesting, So what
• 7:34
  Speaker 1: is there any part of the equity market that you're
• 7:36
  Speaker 1: just no interest in? I just that you're really underweight
• 7:39
  Speaker 1: that's noticeable for you, or you've just given your size,
• 7:42
  Speaker 1: you're just kind of equal weight throughout the index. Paul,
• 7:46
  Speaker 1: We own the entire market as a solid source. Largest
• 7:49
  Speaker 1: the smallest um the one place that I don't have
• 7:52
  Speaker 1: a lot of interest, and it's not that it's a
• 7:54
  Speaker 1: bad segment, but it would be microcap. At my size,
• 7:58
  Speaker 1: it is impractical to try invest anything material in microcap
• 8:02
  Speaker 1: that would it matter to my fund and then also
• 8:05
  Speaker 1: make enough money. It's too problematic. The area that I'm
• 8:08
  Speaker 1: worried about in the equity markets is how extended the
• 8:11
  Speaker 1: tech stocks are. Um, there's a thing that I kind
• 8:15
  Speaker 1: of believe in called earnings. I'm not sure people have
• 8:17
  Speaker 1: heard of that, but earnings, net income not the lift
• 8:22
  Speaker 1: investors obviously. Well, but we're back to that view is
• 8:26
  Speaker 1: it's all about the growth. Will pay whatever we have
• 8:28
  Speaker 1: to to get the growth. I mean, I've been complaining
• 8:30
  Speaker 1: about Amazon for Okay, how's that worked out? All right?
• 8:35
  Speaker 1: Chris Chris al'man Chief investment officer California State Teachers Retirement System.
• 8:40
  Speaker 1: Two six billion dollars invested for the long term. We learned,
• 9:03
  Speaker 1: we did learns of information about Saudi Aramco, which is
• 9:07
  Speaker 1: marketing dollar bonds for the first time to purchase to
• 9:11
  Speaker 1: finance its purchase of Sabik. We talked. We learned that
• 9:14
  Speaker 1: it was the most profitable company by certain measures in
• 9:18
  Speaker 1: the world, earning a hundred and eleven billion dollars in
• 9:23
  Speaker 1: one year, dwarfing the amount of money brought in by
• 9:27
  Speaker 1: Apple joining us. Now, I'm very pleased to say. Dr
• 9:29
  Speaker 1: ellen Wald, president of Transversal Consulting, also a non resident
• 9:33
  Speaker 1: Senior Fellow at the Atlantic Council's Global Energy Center, a
• 9:36
  Speaker 1: contributor to Bloomberg Opinion, and a very wonderful guest on
• 9:40
  Speaker 1: this show. Dr Wall, thank you for being with us.
• 9:43
  Speaker 1: What stood out most to you about the financial disclosures
• 9:47
  Speaker 1: from Saudi Aramco? Hi, it's good to be here. What
• 9:51
  Speaker 1: what stood out most most significantly to me was the
• 9:55
  Speaker 1: number that a Ramco is paying in dividends to the
• 9:58
  Speaker 1: Saudi government. And we all knew that around COO was
• 10:02
  Speaker 1: a very profitable company, we didn't know quite how profitable.
• 10:06
  Speaker 1: But the fact that it is the most profitable company
• 10:08
  Speaker 1: in the world isn't really a surprise. But what's more
• 10:12
  Speaker 1: interesting is that we've learned that since the government lowered
• 10:16
  Speaker 1: a Ramco's income tax rate to fifty UM, they had
• 10:20
  Speaker 1: to be making up that money somehow, that that deficit
• 10:24
  Speaker 1: in money somehow, And I've always suspected that they were
• 10:28
  Speaker 1: getting it in dividends, but this information gives us a
• 10:31
  Speaker 1: sense of just how much the government is getting in dividends.
• 10:34
  Speaker 1: It's up fifty eight point to billion dollars in in
• 10:38
  Speaker 1: two thousand and eighteen, and that's a very significant number.
• 10:42
  Speaker 1: Uh and and has a lot to say. I think
• 10:45
  Speaker 1: about a ram Coosh financial future should it ever pursue
• 10:49
  Speaker 1: an I p O on international markets. Um, it's really
• 10:53
  Speaker 1: it's showing the government is still ending up with a
• 10:55
  Speaker 1: lot of money. And um, even though it's switched, it's
• 10:59
  Speaker 1: it's a come tax rate and could potentially impact an
• 11:03
  Speaker 1: IPO in the future, particularly if it UM perhaps does
• 11:08
  Speaker 1: offer this kind of dividend rate to other shareholders. Right now,
• 11:11
  Speaker 1: the government is the sole shareholder, But if you do
• 11:13
  Speaker 1: do an I p O, you've got other shareholders. Will
• 11:16
  Speaker 1: they offer such lucrative dividends to other shareholders? If so,
• 11:20
  Speaker 1: that could make a Ramco a very valuable investment. On
• 11:24
  Speaker 1: the other hand, they may choose to not offer that
• 11:27
  Speaker 1: in their share classes, which might make a Ramco not
• 11:30
  Speaker 1: quite as valuable in investment if they do I p O.
• 11:34
  Speaker 1: So so, dr Wall, do you anticipate or is it
• 11:36
  Speaker 1: you're thinking that maybe this dollar bond offering that they're
• 11:40
  Speaker 1: coming to the market with might be a precursor for
• 11:42
  Speaker 1: an IPO. I do think it's definitely a way to
• 11:45
  Speaker 1: test the waters to see what people how people respond
• 11:50
  Speaker 1: to this, what people make of their financial data. One
• 11:53
  Speaker 1: of the things that we've seen throughout kind of Ramco's
• 11:56
  Speaker 1: history is that it has been a very secretive company.
• 11:59
  Speaker 1: Um Really, it's had no reason to ever share any
• 12:02
  Speaker 1: financial data, which is why it's seen a secretive. But
• 12:05
  Speaker 1: people have taken that to believe that something nefarious was
• 12:08
  Speaker 1: going on. Perhaps the Ramco was bleeding money to the
• 12:11
  Speaker 1: government in uh social projects or uh you know, palaces
• 12:15
  Speaker 1: for the kings, And what we learned from this is
• 12:18
  Speaker 1: that that's not actually the case at all. Uh And
• 12:21
  Speaker 1: so Aramco maybe using this as a way to test
• 12:23
  Speaker 1: the water to see what the responses to to this
• 12:27
  Speaker 1: financial data ahead of you know, doing this this I
• 12:30
  Speaker 1: p O perhaps in a few years and releasing more
• 12:33
  Speaker 1: financial data. Well. The interesting thing is Bloomberg Oil correspondent
• 12:37
  Speaker 1: Javier Blast put out a piece where he said that
• 12:39
  Speaker 1: looking at this financial data means that the valuation of
• 12:42
  Speaker 1: Saudi Aramco is probably closer to one point two trillion
• 12:45
  Speaker 1: dollars rather than two trillion dollars. Would you agree with that.
• 12:49
  Speaker 1: I'm not sure i'd agree with one point too, but
• 12:51
  Speaker 1: I definitely think that based on this data, um the
• 12:55
  Speaker 1: evaluation has to be at least one trillion, because if
• 12:58
  Speaker 1: you're going to evaluate our bull Microsoft at about a
• 13:01
  Speaker 1: trillion dollars, then this company is significantly, as you said,
• 13:05
  Speaker 1: more profitable. So they've got to be above one trillion.
• 13:08
  Speaker 1: So just where they are in between one and two
• 13:11
  Speaker 1: trillion is questionable. And I do think that there's a
• 13:15
  Speaker 1: significant liability that a Ramco faces in terms of evaluation
• 13:19
  Speaker 1: due to their connection to the Saudi government. Well, that
• 13:23
  Speaker 1: was what I was going to say. I mean, how
• 13:25
  Speaker 1: does a company go public and be beholden to public
• 13:29
  Speaker 1: investors when ultimately it's still is very beholden to a
• 13:33
  Speaker 1: government that can wields authority over it and demand higher
• 13:37
  Speaker 1: you know, and tax it more, do what it needs
• 13:39
  Speaker 1: to do depending on its revenue streams. Yeah, and that's
• 13:42
  Speaker 1: and that's a significant question. Historically, a Ramco has always
• 13:46
  Speaker 1: had kind of a set tax rate, although at times
• 13:50
  Speaker 1: it was actually an industrible tax rate to make sure
• 13:52
  Speaker 1: that the government had enough money. So there's always a
• 13:54
  Speaker 1: possibility that that could happen again. There's also this issue.
• 13:58
  Speaker 1: I would have said, if you'd ask me that question
• 14:00
  Speaker 1: five years ago, I would have said, a Ramco is
• 14:02
  Speaker 1: a very independent company. The king really has a sense
• 14:05
  Speaker 1: of this, this company should be independent. They let it
• 14:08
  Speaker 1: run itself, and you know, they take what they can
• 14:11
  Speaker 1: get what they get from the company. But that's not
• 14:13
  Speaker 1: the case anymore. We're seeing a king and also a
• 14:16
  Speaker 1: crown Prince who are much more involved in the various
• 14:19
  Speaker 1: power centers of the kingdom, and that includes a Ramco.
• 14:22
  Speaker 1: And so I do think when you're looking at at
• 14:25
  Speaker 1: a future for a Ramco. There's really no telling what
• 14:28
  Speaker 1: kind of demands the Royal family may make on the
• 14:31
  Speaker 1: company and what the future could hold. So far, none
• 14:34
  Speaker 1: of this is really damaging to the core profitability of
• 14:37
  Speaker 1: the company. The Savag acquisition is not a significant add
• 14:40
  Speaker 1: a significant liability. In fact, may be more profitable for
• 14:43
  Speaker 1: the company in the long run, but we just don't know,
• 14:46
  Speaker 1: and that is a significant risk. Dr ellen Wald, thank
• 14:50
  Speaker 1: you so much. Dr Wald, as president of Transversal Consulting.
• 14:54
  Speaker 1: She's also a nonresident Senior Fellow at the Atlantic Council's
• 14:57
  Speaker 1: Global Energy Center and a contributor to Bloomberg Opinion. Well,
• 15:16
  Speaker 1: it looks like progress is being made between the U
• 15:19
  Speaker 1: S and China on trade negotiations UH. Chinese Vice Premier
• 15:23
  Speaker 1: Leo Hey is due to return to d C this week,
• 15:26
  Speaker 1: suggesting that the both sides are getting nearer to the
• 15:30
  Speaker 1: final deal. To help us break this down and all
• 15:33
  Speaker 1: things geopolitics, we welcome our friend Dr Sam Natapoff. He
• 15:36
  Speaker 1: as president of Empire Global Ventures. He joins us here
• 15:39
  Speaker 1: in our Bloomberg Interactive Brokers studio. Sam, thanks for joining
• 15:43
  Speaker 1: us once again. Let's start with China. We'll get the
• 15:45
  Speaker 1: Brexit later, but with China it appears like we are
• 15:49
  Speaker 1: moving towards a deal. Do you think anything is going
• 15:51
  Speaker 1: to get done? And when, um, some things are getting done,
• 15:55
  Speaker 1: these are generally at the tactical level. So last Friday,
• 15:58
  Speaker 1: JP Morgan, for the first time in ten years, was
• 16:01
  Speaker 1: given permission to own a majority stake in their own
• 16:04
  Speaker 1: financial concern inside China. It was both Nomura Securities and
• 16:08
  Speaker 1: JP Morgan, and that hadn't happened for a decade. So
• 16:12
  Speaker 1: things are moving at the tactical level because the Chinese
• 16:15
  Speaker 1: government wishes to show that they are being flexible with
• 16:18
  Speaker 1: the pressure that the U. S Government is bringing on it. Unfortunately,
• 16:21
  Speaker 1: at the strategic level, the important issues of intellectual property protection, UH,
• 16:26
  Speaker 1: some issues of majority ownership and tech transfer, those are
• 16:29
  Speaker 1: intractable because there's domestic political pressures on both sides. Um Um.
• 16:34
  Speaker 1: The president of China can't look like he's caving into
• 16:37
  Speaker 1: the Americans, and President Trump, as always, is looking for
• 16:40
  Speaker 1: a clear, definitive public win. So if you could give
• 16:44
  Speaker 1: the odds here, what do you think the chances are
• 16:47
  Speaker 1: of a deal between the US and China within the
• 16:49
  Speaker 1: next two months? That's that's that's not what the market
• 16:55
  Speaker 1: is predicting. That is out of consensus. The reason I
• 16:58
  Speaker 1: say that is that there will be trivial things that
• 17:01
  Speaker 1: will be going across and the president of China will
• 17:03
  Speaker 1: sign a deal that says will buy a hundred and
• 17:06
  Speaker 1: fifty billion dollars more of US goods, particularly soybeans and
• 17:09
  Speaker 1: US agricultural goods to make it look good on the
• 17:12
  Speaker 1: front pages of the Wall Street Journal. But the things
• 17:14
  Speaker 1: that matter I can't compromise on because I'm in a
• 17:17
  Speaker 1: sensitive position politically. That's why they remember March first was
• 17:22
  Speaker 1: when they when Donald Trump was supposed to raise tariffs
• 17:24
  Speaker 1: again from ten to twenty five. He kicked the can
• 17:26
  Speaker 1: down the road a couple of months, and they're gonna
• 17:29
  Speaker 1: they're desperately negotiating to try and make it look good enough,
• 17:32
  Speaker 1: but they won't get there on the big things. The
• 17:34
  Speaker 1: little things will be fine. It's very specific. That is
• 17:38
  Speaker 1: he's been thinking about that that question first. Love it
• 17:40
  Speaker 1: so again. Just remind us, um Sam kind of what
• 17:44
  Speaker 1: are really the constraints in China to agreeing to more
• 17:48
  Speaker 1: substantive issues. Uh, there's a great sense of a national
• 17:54
  Speaker 1: pride inside China. And at the rise of China as
• 17:57
  Speaker 1: an economic and political and geopolitical power. The obvious counterpoint
• 18:01
  Speaker 1: to the rise of Chinese influences US influence, and this
• 18:04
  Speaker 1: contest which is in both trade, economics, science, military culture.
• 18:10
  Speaker 1: These are areas of enormous sensitivity inside China, and Jijinping
• 18:15
  Speaker 1: cannot be shown to be taking a back a step
• 18:19
  Speaker 1: back against pressure from the Americans, with whom he's had
• 18:23
  Speaker 1: a complicated relationship. Furthermore, domestically, Uh Jijinping is under enormous
• 18:28
  Speaker 1: pressure because the Chinese economy is slowing and and internal
• 18:32
  Speaker 1: and domestic views of him and his government are beginning
• 18:36
  Speaker 1: to sway because people aren't getting wealthier, jobs aren't being
• 18:40
  Speaker 1: created at the same level. And at the People's Congress
• 18:44
  Speaker 1: two years ago he was able to pass a constitutional
• 18:47
  Speaker 1: resolution saying he could have another term, but that that
• 18:50
  Speaker 1: someone could have more than two terms in a row.
• 18:52
  Speaker 1: It wasn't specifically him. The moment he says I would
• 18:56
  Speaker 1: like another term, his political opponents in China, and there
• 19:00
  Speaker 1: are those powerful political opponents will turn and say, well,
• 19:04
  Speaker 1: let's look at your record, and it hasn't been terribly
• 19:06
  Speaker 1: distinguished to date, so let's shift let's move from China
• 19:11
  Speaker 1: to the United Kingdom where there is another vote on Brexit,
• 19:14
  Speaker 1: because it seems like every day there is another vote
• 19:17
  Speaker 1: on Brexit. And what I'm struggling to understand is that
• 19:21
  Speaker 1: there is a hard deadline of April twelve. It doesn't
• 19:25
  Speaker 1: feel like Parliament is all that much closer to some
• 19:29
  Speaker 1: sort of resolution here. Well, the thing to remember is
• 19:32
  Speaker 1: what Mark Twain said about today, which is today is
• 19:35
  Speaker 1: the day we remember what we are the other three
• 19:37
  Speaker 1: hundred and sixty four days of the year, and this
• 19:40
  Speaker 1: is the moment when Parliament is walking in again, and
• 19:44
  Speaker 1: Parliament has taken away control of the Brexit process from
• 19:47
  Speaker 1: the executive branch, from Prime Minister Theresa May, and now
• 19:51
  Speaker 1: they are desperately looking for some kind of a solution.
• 19:54
  Speaker 1: There are three outcomes in general order of likelihood. It's
• 19:58
  Speaker 1: a permanent customs union with the European Union. It's after
• 20:02
  Speaker 1: that a second referendum, and third it's a no deal brexit. Generally,
• 20:06
  Speaker 1: people want to avoid a no deal Brexit, except for
• 20:09
  Speaker 1: a hundred and seventy Conservative MPs who signed a letter
• 20:12
  Speaker 1: to that effect that they wanted it last week. But
• 20:15
  Speaker 1: thank goodness, it's not up to them, we'll probably Parliament
• 20:19
  Speaker 1: now understands that in eleven days Britain is looking at
• 20:22
  Speaker 1: an economic catastrophe and they can't um. The Government of
• 20:26
  Speaker 1: Britain and Goldman Sacks have done similar analyses saying this
• 20:29
  Speaker 1: has cost Britain a billion dollars a week since June.
• 20:33
  Speaker 1: It's cost about two point four percent of their GDP
• 20:36
  Speaker 1: since the referendum to say they want to leave. They
• 20:38
  Speaker 1: need to fix their economy. This is a real problem
• 20:41
  Speaker 1: and today they're going to be more indicative votes. But
• 20:44
  Speaker 1: they have to come to a solution. Either it's a
• 20:47
  Speaker 1: customs unions plus or minus, or it's a referendum, and
• 20:50
  Speaker 1: with the referendum comes a general election. I like the
• 20:52
  Speaker 1: referendum and choice myself. I've been calling for that since
• 20:54
  Speaker 1: day one. Let's let's just do it. Do over here.
• 20:57
  Speaker 1: So what are the chances of cost we referendum? What
• 21:03
  Speaker 1: are the chances of this referendum? And then is there
• 21:05
  Speaker 1: what's the polling saying that that the polling was accurate
• 21:07
  Speaker 1: the first time? Well, what is the polling saying about
• 21:09
  Speaker 1: an outcome up of a second referendum? Uh, It's enormously
• 21:13
  Speaker 1: difficult to know because polling is all over the place,
• 21:16
  Speaker 1: and it's still very difficult to tell because Britain is
• 21:18
  Speaker 1: very split on this topic. And the terrible irony is
• 21:22
  Speaker 1: that this is an entirely politically created crisis. It was
• 21:25
  Speaker 1: created by the Conservative Party and Benjamin Disraeli, the Prime
• 21:29
  Speaker 1: Minister of Great Britain in eighteen seventy four, noted novelists
• 21:32
  Speaker 1: said in one of his novels, there was a great
• 21:34
  Speaker 1: deal of shouting about Conservative principles, but the awkward question
• 21:39
  Speaker 1: did arise, what will you conserve? And Teresa May is
• 21:43
  Speaker 1: faced with the problem. She can either conserve Britain as
• 21:46
  Speaker 1: a functioning modern economy as part of the EU, or
• 21:49
  Speaker 1: she can conserve the Conservative Party. She will have to
• 21:53
  Speaker 1: choose between the two of them. And in the next
• 21:55
  Speaker 1: week Dr Sam natapaf in ten seconds, what is the
• 22:00
  Speaker 1: chance of a herd Brexit right now versus where we
• 22:04
  Speaker 1: were two months ago? Right? What about two months ago? Alright,
• 22:12
  Speaker 1: so we're moving closer to some sort of resolution. Maybe
• 22:16
  Speaker 1: perhaps Well Tom Tom Keane is over in London, he's
• 22:20
  Speaker 1: on the Westminster Green. Maybe he can help get some
• 22:23
  Speaker 1: some deal brokered. Okay, well we'll hope, Well, we'll hang
• 22:26
  Speaker 1: our hats for Tom Keane. Dr. Sam Nada, President of
• 22:30
  Speaker 1: Empire Global Ventures in New York, Joining us here in
• 22:32
  Speaker 1: our Bloomberg Interactive Broker Studios, Paul, I cannot wait for
• 22:48
  Speaker 1: this conversation. Do you have an Alexa? Uh? We have something.
• 22:53
  Speaker 1: My son installed, something that he installed. There's a big question,
• 22:58
  Speaker 1: as I think eight billle in digital voice assistants are
• 23:02
  Speaker 1: predicted to be in use by three, which is how
• 23:05
  Speaker 1: are people using these devices? Joining us now, Colin Morris,
• 23:09
  Speaker 1: director of Product management for Adobe Analytics Mobile, based in
• 23:13
  Speaker 1: San Francisco. Colin, so, how do you determine what? How
• 23:17
  Speaker 1: are people using these devices? Um? So right now? A
• 23:21
  Speaker 1: lot of the devices are over mobile smartphones, um, smart speakers,
• 23:25
  Speaker 1: a little bit in the car, a little bit on tablets,
• 23:27
  Speaker 1: but in general they're fairly rudimentary home applications. So interesting, Colins, So,
• 23:34
  Speaker 1: just this market is it seems like it's just you know,
• 23:37
  Speaker 1: exploded over the last couple of years. You've got Amazon, Echo,
• 23:41
  Speaker 1: Google Home. Just give us a sense of how quickly
• 23:44
  Speaker 1: the growth and devices has been. Yeah, definitely. I mean
• 23:47
  Speaker 1: in our in our last survey where we had about
• 23:49
  Speaker 1: thousand US consumers, let us know, seventies seven percent of
• 23:53
  Speaker 1: people you know reported increasing their use of voice assistance
• 23:55
  Speaker 1: in the last year. That's up from the year before.
• 23:59
  Speaker 1: So not only is it is it exploding because the
• 24:02
  Speaker 1: devices are obviously selling a lot, but also the applications
• 24:05
  Speaker 1: are getting better, right, The AI behind it is getting better,
• 24:07
  Speaker 1: and it's allowing a lot of brands to get into
• 24:10
  Speaker 1: experiences with the consumer that they haven't been able to before,
• 24:13
  Speaker 1: especially because voice assistants are a medium that sits on
• 24:16
  Speaker 1: top of a lot of different devices. So a media
• 24:18
  Speaker 1: and entertainment company can now provide an experience in the home,
• 24:22
  Speaker 1: or an automotive company can provide a continuous experience in
• 24:25
  Speaker 1: the home as well or on other services. But when
• 24:27
  Speaker 1: you talk about a continuous experience, you're talking about playing
• 24:29
  Speaker 1: music beyond music hopefully, but uh, imagine, for instance, if
• 24:34
  Speaker 1: you're using a voice assisted remote control speaker for your
• 24:37
  Speaker 1: cable company, right, and that cable company realizes that based
• 24:40
  Speaker 1: on your preferences, they can offer other reminders for shows
• 24:44
  Speaker 1: or promotions of other personalized content. So um, that allows
• 24:48
  Speaker 1: them to extend their brand beyond the confines of the
• 24:52
  Speaker 1: device that they're in and also provides a better customer experience,
• 24:54
  Speaker 1: So it can be music, it can be checking your stocks,
• 24:57
  Speaker 1: it can be you know, news flashes. But UM, the
• 25:00
  Speaker 1: ptential for voice assistance to provide a more immersive experience
• 25:03
  Speaker 1: UM for a lot of brands is pretty exciting. So Colin,
• 25:05
  Speaker 1: how quickly are these devices and the apps that are
• 25:09
  Speaker 1: on these devices, how quickly are they getting smarter and
• 25:12
  Speaker 1: doing more and more complex things for consumers? Yeah? Great question. UM.
• 25:17
  Speaker 1: I think now that the error rates UM have lowered
• 25:20
  Speaker 1: a year over year between you know, inflections and syntax, UM,
• 25:24
  Speaker 1: all the things that have kind of shown a poor
• 25:26
  Speaker 1: experience over the last few years. The AI and the
• 25:29
  Speaker 1: machine learning behind it is really uh, come leaps and
• 25:32
  Speaker 1: bounds UM. You know, think about chat boss as well.
• 25:35
  Speaker 1: It's not just voice assistance overall. UM. But again, because
• 25:38
  Speaker 1: there's so much of a test bed now because so
• 25:39
  Speaker 1: many consumers around the world are using it, UM, that
• 25:42
  Speaker 1: just helps train the models and helps better data provide
• 25:46
  Speaker 1: better experiences. I have a friend who won't get a
• 25:48
  Speaker 1: digital assistant because she doesn't want her children thinking that
• 25:51
  Speaker 1: they can bark commands at something and have it respond.
• 25:54
  Speaker 1: They think that it's really bad training. And sure enough,
• 25:57
  Speaker 1: when I talked to my Alexa, I do find myself
• 25:59
  Speaker 1: saying and Alexa volume down and it is very nice.
• 26:03
  Speaker 1: Is anyone focused on that and sort of promoting better
• 26:07
  Speaker 1: sort of verbal skills? Yeah, I mean what do they
• 26:10
  Speaker 1: start responding right? Um, that's not very nice. That's not
• 26:14
  Speaker 1: a very good inflection. Yeah. I mean one of the
• 26:17
  Speaker 1: interesting areas is gaming, right, because gamers are gaming app
• 26:21
  Speaker 1: developers are always pretty out on the forefront in terms
• 26:24
  Speaker 1: of what experiences they provide. Um, like the Jeopardy app
• 26:27
  Speaker 1: for instances by Sony is the number one Alexa gaming
• 26:31
  Speaker 1: app out their skill I should say, Um, so there's
• 26:33
  Speaker 1: a lot of AI that's coming back in terms of
• 26:35
  Speaker 1: responses and having more of a conversation. It's not going
• 26:38
  Speaker 1: to be your therapist tomorrow, but it will be more
• 26:40
  Speaker 1: immersive overall, and it might be who knows, right, we
• 26:43
  Speaker 1: see longer session times now and longer interactions over over
• 26:47
  Speaker 1: the medium in general. And it depends by obviously which
• 26:50
  Speaker 1: device it's on right now, home speaker is there, it's stationary,
• 26:53
  Speaker 1: you're in the home, so you're going to have a
• 26:55
  Speaker 1: different pattern of use than say, talking to your car,
• 26:58
  Speaker 1: whereby you might be a captive audience, but trips might
• 27:00
  Speaker 1: be shorter or longer in some cases. Yeah, so, Colin,
• 27:03
  Speaker 1: one of the pushbacks I know from some consumer advocates
• 27:05
  Speaker 1: is privacy. What is your survey telling you about, you know,
• 27:09
  Speaker 1: consumers and the concern about privacy. Well, the concern about
• 27:12
  Speaker 1: privacy is real. I think. Within the last few years,
• 27:14
  Speaker 1: obviously there's been a number of problematic issues um in
• 27:18
  Speaker 1: the tech industry in general. We had Adobe really pushed
• 27:21
  Speaker 1: the experiential privacy promotion to a lot of our customers
• 27:26
  Speaker 1: in general, meaning that you know, we we encourage brands
• 27:30
  Speaker 1: to let the consumers know up front exactly what they're
• 27:33
  Speaker 1: trying to collect and what the benefit is for the consumer,
• 27:36
  Speaker 1: because when it's transparent and it's open, it's much easier
• 27:39
  Speaker 1: for a consumer to say yes or no. If a
• 27:41
  Speaker 1: lot of data is being passed in the background and
• 27:42
  Speaker 1: the consumer doesn't know about it and then something happens,
• 27:44
  Speaker 1: obviously that's problematic and it erodes trust in the brand.
• 27:49
  Speaker 1: Colin Mars, thank you very much. Colin is a director
• 27:51
  Speaker 1: of product management for Adobe Analytics Mobile, joining us from
• 27:54
  Speaker 1: San Francisco on what is just a really interesting technology
• 27:58
  Speaker 1: here that just seems to have haven't really exploded really
• 28:01
  Speaker 1: over the last couple of years. Thanks for listening to
• 28:03
  Speaker 1: the Bloomberg pen L podcast. You can subscribe and listen
• 28:06
  Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
• 28:10
  Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm
• 28:12
  Speaker 1: Lisa Abram Woyds. I'm on Twitter at Lisa Abram woits
• 28:15
  Speaker 1: one Before the podcast, you can always catch us worldwide.
• 28:18
  Speaker 1: I'm Bloomberg Radio