Latest / Bloomberg Intelligence / Tariffs May Cause Pricing Premiums For US-Made Steel: Dudas

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Tariffs May Cause Pricing Premiums For US-Made Steel: Dudas · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,
• 0:33
  Speaker 1: we may hear more from President Trump this week about
• 0:37
  Speaker 1: those aluminum and steel tariffs that he was talking about,
• 0:42
  Speaker 1: which could end up being uh the maximum that any
• 0:46
  Speaker 1: of his advisers recommended tariff on steel imports. Here to
• 0:51
  Speaker 1: kind of look at what the possible implications of this
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  Speaker 1: are is Mike dudas partner and Medals and Mining analysts
• 0:58
  Speaker 1: for Vertical Research Partners. He joins us here in eleven
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  Speaker 1: three oh studios today, so we're very happy to see you. Mike.
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  Speaker 1: Just walk us through what a twent tariff on steel
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  Speaker 1: and a ten percent tariff on aluminum would do. So
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  Speaker 1: I think when you think of the big picture, it
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  Speaker 1: will increase steel prices and aluminum prices, but you'll also
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  Speaker 1: see dynamics where there may be an oversupply of steel
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  Speaker 1: or aluminum saying the Pacific where a lot of the
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  Speaker 1: excess production of steel aluminum occur, and a shortage in
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  Speaker 1: the you know, this part of the market, the US,
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  Speaker 1: you know, North America, South American market, which could lead
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  Speaker 1: to higher premiums for users of US and aluminium steel
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  Speaker 1: as opposed to um you know, and and maybe a
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  Speaker 1: lower premium overseas. But generally it's going to raise prices,
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  Speaker 1: could even raise more for customers of US medals. But
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  Speaker 1: could you just explain what you're talking about? In other words,
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  Speaker 1: it'll be uh more expensive for people in the US
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  Speaker 1: to buy steel and aluminum. It certainly could be. So
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  Speaker 1: most of the excess steel is produced outside the United States,
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  Speaker 1: primarily in Asia. So as tariffs of of steel and
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  Speaker 1: limits of steel coming into this country, that's gonna lead
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  Speaker 1: probably for less steel to come in here from Asia.
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  Speaker 1: It's gonna be more supply less demand in Asia and
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  Speaker 1: will be more demand less supply, say here in US
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  Speaker 1: North America, which could lead to uh some pricing dynamics
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  Speaker 1: as well if timber cent numbers are what's going to
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  Speaker 1: be recommended and go through. So so if you are
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  Speaker 1: and there was this interesting story about this because of
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  Speaker 1: course there are many steel companies that have operations in Ohio,
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  Speaker 1: but there are also many companies in Ohio that, as
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  Speaker 1: you say, use steel and aluminum as an input. And
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  Speaker 1: because the price is set globally rather than locally, is
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  Speaker 1: saying that if you're a fabricator for the aerospace, the automotive,
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  Speaker 1: or another industry that's similar, you're gonna end up having
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  Speaker 1: to pay higher prices for the very products that you
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  Speaker 1: then make in the United States. Correct Now, some products
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  Speaker 1: are more intense or less intense than a certain steel
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  Speaker 1: or aluminum or all the different contents. Even automobiles have
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  Speaker 1: been moving away from steel in their bodies towards aluminum.
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  Speaker 1: But that's that's gonna be. That's a fair observation, especially
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  Speaker 1: with the economy. Even before these tariff and the discussions
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  Speaker 1: were announced, and President Trump mentioned that a couple of
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  Speaker 1: days ago, you know, prices were starting to improve, expectations, demands,
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  Speaker 1: supply was looking pretty good. So this gives a boost
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  Speaker 1: for that. But yes, there's a lot more consumers of
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  Speaker 1: steel and other products and other products that are going
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  Speaker 1: to be impacted by right, because I think that's like
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  Speaker 1: one there's estimates, I think one million workers around across
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  Speaker 1: the United States work in industries that make products from
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  Speaker 1: steel and aluminum, and there are about eighty thousand workers
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  Speaker 1: at steel plants. So that has been an argument used
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  Speaker 1: for decades about you know, free trade and and you know,
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  Speaker 1: relative it's fair or free trade, and certainly from a
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  Speaker 1: political aspect, and what President Trump got helped elected in
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  Speaker 1: that part of the country, and his Commerce Secretary will Burross,
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  Speaker 1: who was intimately well known in the steel and the
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  Speaker 1: coal industries. I don't think it's that surprising to get
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  Speaker 1: this type of announcement, but maybe the number was a
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  Speaker 1: bit shocking. But he is a dealmaker, So maybe you
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  Speaker 1: start here and work your way to something a little
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  Speaker 1: bit more ameliorative to everyone else. Just real quick, how
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  Speaker 1: much good prices increase. So depending on products, you could
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  Speaker 1: see you flat roll rebar to this point, you could
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  Speaker 1: see pops in certain areas. Now there could be other
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  Speaker 1: aspects around the world where kind of ameliorates, but you're
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  Speaker 1: gonna you could see some, you know, some pretty decent
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  Speaker 1: pricing pops going forward. One other area that I didn't
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  Speaker 1: want to hit with you was gold because there's been
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  Speaker 1: a big question about whether this is truly acting as
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  Speaker 1: an inflation hedge. What what is gold right now and
• 4:55
  Speaker 1: why is it underperformed with some people thought it's not bitcoin. Okay,
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  Speaker 1: if you make it smaller and just call it gold
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  Speaker 1: did go very good. Yeah, I'm surprised that hasn't even
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  Speaker 1: put on exchange yet. So um, yeah, I think it's interesting.
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  Speaker 1: Gold has been relatively holding its value over the past
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  Speaker 1: several months. It's been in a kind of a narrow
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  Speaker 1: trading range. I think it's starting to sniff a little
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  Speaker 1: bit of inflation expectations rising. I think we've seen that
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  Speaker 1: in the bond market. I think we've seen that from
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  Speaker 1: some of the policies that we're seeing, and that is
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  Speaker 1: starting to creep into I think support for gold. So
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  Speaker 1: I think from the supply demand balance, there's definitely much
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  Speaker 1: better demand for gold elsewhere like in China and India,
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  Speaker 1: and supplies coming off because we've had such lack of
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  Speaker 1: capital spending the last five years. But I do think
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  Speaker 1: that gold starting to with a little bit of inflation
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  Speaker 1: and starting to support a support prices here, and I
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  Speaker 1: think you'll see that going forward as well. If you're
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  Speaker 1: an investor and you're thinking about these kinds of metals
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  Speaker 1: as an investment, would you be looking to a company
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  Speaker 1: that that doesn't do gold exclusively, and I'm thinking, for example,
• 6:00
  Speaker 1: of Freeport Macmuran. In other words, you get copper, but
• 6:02
  Speaker 1: you awsome mind Goal rather than gold Court for example.
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  Speaker 1: Excellent question because some of the pure gold names have
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  Speaker 1: not performed as well as some of the diverse mind
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  Speaker 1: mires like a Glencore or the Freeport for example, which
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  Speaker 1: certainly has the impact of what's going on in Indonesia.
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  Speaker 1: So in a broad based economic metal commodity recovery, which
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  Speaker 1: we are anticipating in metals like Goal, copper, zinc, lead, aluminum,
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  Speaker 1: some of the verse fine miners might be a good
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  Speaker 1: place to be in and one of our recommended names
• 6:30
  Speaker 1: is Freeport. On that basis, did you happen to have
• 6:33
  Speaker 1: any thoughts about the report last week that Apple is
• 6:37
  Speaker 1: looking to to UH access cobalt directly in order to
• 6:43
  Speaker 1: have that supply for their their iPhones and their their devices,
• 6:47
  Speaker 1: for their batteries and so on. So over cycles, we
• 6:49
  Speaker 1: remember companies want to access some of the rare earth minerals,
• 6:52
  Speaker 1: remember that several years ago and trying to get direct
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  Speaker 1: um the auto companies, remember still water mining back in
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  Speaker 1: the day palladium in Montana. Let's go correct direct contract,
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  Speaker 1: so it's not unprecedented. And if an electric battery electric
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  Speaker 1: vehicle world, as I'm sure you're quite aware of, cold
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  Speaker 1: book would be very very important. So I can see
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  Speaker 1: a company like Apple wanting to do that. Now, how
• 7:14
  Speaker 1: you do that and what countries you deal with and
• 7:17
  Speaker 1: how you access that's for another discussion. Uh. Just before
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  Speaker 1: you go, I wish to get your thoughts on the
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  Speaker 1: dollar and how much you're really paying attention to it
• 7:26
  Speaker 1: with respect to commodity prices. So you have to pay
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  Speaker 1: attention to it if you're trying to, UM, get a
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  Speaker 1: sense of where many of these commodities, especially the metals,
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  Speaker 1: are going. The dollar has Everybody has been calling for
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  Speaker 1: a bullish moving a dollar in two thousand eighteen, they
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  Speaker 1: called for a bullish moving seventeen. It really hasn't occurred,
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  Speaker 1: and that's been very supportive I think across the board
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  Speaker 1: for many of the commodities has been supported for oil
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  Speaker 1: as well. Um, you're I think you could see maybe
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  Speaker 1: a little bit of us if the bond market starts
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  Speaker 1: to you know, sell off and you get a little
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  Speaker 1: bit higher rates, that couldn't get a bid to the dollar,
• 7:58
  Speaker 1: but relative to the euro weal to yeah, and Lada
• 8:02
  Speaker 1: has not acted as well. So I do think the
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  Speaker 1: path of leafs resistance right now continues to be lower,
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  Speaker 1: but we could see some strength if the bomb market
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  Speaker 1: starts to get funky on us. All right, well, we're
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  Speaker 1: gonna leave it there, but thanks very much for coming
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  Speaker 1: in and spending time with us. Mike Dodas is the
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  Speaker 1: partner and medals and mining analysts for Vertical Research Partners.
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  Speaker 1: Companies are buying back their shares at the fastest pace
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  Speaker 1: in the credit cycle. That is according to fourth quarter
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  Speaker 1: data compiled by Brian Reynolds, who is an asset class
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  Speaker 1: strategist focusing on US cash equities for Kindeord Genuity Corporation
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  Speaker 1: in New York. Brian joins us, now, thank you so
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  Speaker 1: much for being with us. I just want to start
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  Speaker 1: with the actual data. What are you finding, uh and
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  Speaker 1: why were you looking at this particular data so closely?
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  Speaker 1: Well throughout this boom market, by backs have been the
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  Speaker 1: main source of higher stock prices. Investors collectively have done
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  Speaker 1: nothing during this bull market. Some people put money into
• 9:13
  Speaker 1: et f s, but big investors like pensions have been
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  Speaker 1: selling stocks so that's why I focus on the bio backs.
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  Speaker 1: What I look at is on Bloomberg, I add up
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  Speaker 1: the share count data of companies in the SMP five
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  Speaker 1: hundred and I've tried to use that data to figure
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  Speaker 1: out how much stock they've taken out. And it may
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  Speaker 1: be that the fourth quarters are a record for this
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  Speaker 1: cycle in buy backs, and that partly explains why stock
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  Speaker 1: prices were so strong at the end of the year. Alright,
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  Speaker 1: so the data that you have out there, you're boosting
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  Speaker 1: your forecast for the fourth quarter share buybacks to a
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  Speaker 1: hundred and sixty five billion dollars that would exceed the
• 9:50
  Speaker 1: one hundred and sixty one billion dollar high set for
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  Speaker 1: this cycle in the first quarter of twenty sixteen. Is
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  Speaker 1: this a bad thing? It depends on what's I frame.
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  Speaker 1: We're essentially leveraging up our economy to fund share buy
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  Speaker 1: backs to push stock prices up. So while this bull
• 10:06
  Speaker 1: market goes on, it's a good thing. It results in
• 10:08
  Speaker 1: higher stock prices. But eventually credit cycles end, and they
• 10:12
  Speaker 1: always end badly. I don't think this one ends for
• 10:14
  Speaker 1: another three to five years, but when they end, you
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  Speaker 1: get disasters like you start in two thousand eight and
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  Speaker 1: three thousand. Hey, Brian, just a little bit about the
• 10:22
  Speaker 1: sort of nature of of stock buy backs, because you know,
• 10:26
  Speaker 1: you shrink the float. We got that that that typically
• 10:30
  Speaker 1: is one of the things that you know the company
• 10:32
  Speaker 1: is looking to increase its earnings. It's great to shrink
• 10:35
  Speaker 1: the float because that way, uh, it looks like they're
• 10:37
  Speaker 1: making more money. But over time is are there specific
• 10:41
  Speaker 1: rules that investors can follow that they could use that
• 10:45
  Speaker 1: stock buy back perspective in order to make money. Well,
• 10:49
  Speaker 1: I think the important thing to remember is that this
• 10:51
  Speaker 1: list the overall level of stock prices, so like the
• 10:54
  Speaker 1: S and P five hundred, but in terms of individual
• 10:56
  Speaker 1: sectors or companies, it can be random. For example, g
• 11:00
  Speaker 1: and IBM both brought back a lot of stock and
• 11:02
  Speaker 1: they've under perform as investors took that money and reallocated
• 11:06
  Speaker 1: it towards growth. So it's an overall guide, but not
• 11:09
  Speaker 1: a very specific one. Okay, So then should you should
• 11:12
  Speaker 1: you combine it perhaps with something like growing free cash flow?
• 11:17
  Speaker 1: And I tipped my hat to Charlie Biederman of trim
• 11:19
  Speaker 1: Tabs Investment Research, who helped pioneer this idea. If you
• 11:23
  Speaker 1: can find companies where they're increasing free cash flow and
• 11:28
  Speaker 1: buying back their stock. Would that be a good combo. Well, our,
• 11:33
  Speaker 1: that's that's one idea our chief strategist Tony Dwyer, who
• 11:37
  Speaker 1: you all know, he's a favor of more economically sensitive
• 11:40
  Speaker 1: names at this point, more growthier names, especially in the
• 11:44
  Speaker 1: small midcamp area. That's probably where the money is going
• 11:46
  Speaker 1: to be reallocated within the next three or four months,
• 11:49
  Speaker 1: and then after that we'll talk about another reallocation. So, Brian,
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  Speaker 1: I think it also matters where companies get the money
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  Speaker 1: to finance share buybacks. A lot of it is financed
• 12:00
  Speaker 1: with debt. But could it be that in the fourth
• 12:03
  Speaker 1: quarter there was just more business confidence, much more cash
• 12:07
  Speaker 1: coming in through the door that companies were looking to deploy. Well,
• 12:11
  Speaker 1: profitability was up, so that helps a little bit. But
• 12:14
  Speaker 1: most of the profits go to plant equipment spending, which,
• 12:16
  Speaker 1: as Tony Dwyer also points out, is beginning to accelerate,
• 12:19
  Speaker 1: so the cash flow from business tends to get reinvested
• 12:23
  Speaker 1: in business. Most of the buy backs are funded with debt,
• 12:26
  Speaker 1: although now we've got a kicker in the form of
• 12:28
  Speaker 1: repatriation from the tax code, so there's likely going to
• 12:31
  Speaker 1: be more buy backs ahead. In fact, announced by backs,
• 12:34
  Speaker 1: in other words, upcoming ones maybe setting a record this quarter.
• 12:38
  Speaker 1: But the buy backs that have done with debt, will
• 12:40
  Speaker 1: those be limited because the value of issuing debt is
• 12:45
  Speaker 1: going to go down because the deductibility rules have been changed.
• 12:51
  Speaker 1: The demand for corporate bonds is unchanged by tax reform.
• 12:54
  Speaker 1: That's our nation's public pensions and insurance companies putting money
• 12:57
  Speaker 1: to work, so their appetite for credit is as a
• 13:00
  Speaker 1: ravenous as Ever, what this doesn't cut the supply of credit.
• 13:03
  Speaker 1: Companies want to issue fewer debt, fewer amounts of debt,
• 13:06
  Speaker 1: and that means there's more shadow banking that's going to
• 13:08
  Speaker 1: fill that void. And shadow banking, the more of it
• 13:11
  Speaker 1: you have, the higher the stock prices go until it
• 13:14
  Speaker 1: gets thrown into reverse two years after the Yel curving birds. So, Brian,
• 13:19
  Speaker 1: can you give us take us back in history before
• 13:23
  Speaker 1: the two thousand and eight financial crisis. What was the
• 13:28
  Speaker 1: cycle of shared buy backs then and kind of serve
• 13:31
  Speaker 1: as a guide for what we're seeing now. It looks
• 13:34
  Speaker 1: very similar to this cycle, except that cycle was shorter.
• 13:37
  Speaker 1: It was only four years because the Yel curve inverted
• 13:40
  Speaker 1: quickly in two thousand five, bringing on the crisis in
• 13:43
  Speaker 1: two thousand seven, but it was much the same with
• 13:45
  Speaker 1: companies buying back stock using borrowed money, while investors kind
• 13:48
  Speaker 1: of sat on their hands until the last two years
• 13:51
  Speaker 1: of the bull market. So in other words, I guess
• 13:54
  Speaker 1: what I'm trying to wonder is are we going to
• 13:58
  Speaker 1: look back and say that companies bar owed money to
• 14:00
  Speaker 1: buy their shares at the highest possible valuations, which was
• 14:04
  Speaker 1: basically throwing it away. Well, the highest possible evaluation that
• 14:09
  Speaker 1: we did was in the nineteen nineties, which was throwing
• 14:11
  Speaker 1: it away. The last time was less of a higher
• 14:14
  Speaker 1: valuation than we're at a lower valuation now. But essentially, yes,
• 14:17
  Speaker 1: we are leveraging up our economy to push up stock prices,
• 14:20
  Speaker 1: just none of the high valuations yet. And Brian, just quickly,
• 14:24
  Speaker 1: I mean, could this be changed, Let's say, if there
• 14:26
  Speaker 1: were new rules in the county, because right now, you know,
• 14:28
  Speaker 1: spending money on research and development doesn't necessarily benefit the
• 14:32
  Speaker 1: way you look at the balance sheet. Well, this is
• 14:37
  Speaker 1: driven by our public pensions who really aren't impacted by
• 14:41
  Speaker 1: rules and regulations. They haven't need to make seven and
• 14:43
  Speaker 1: a half percent, and they're gonna lend money to anybody
• 14:46
  Speaker 1: that wants it. So maybe if the margins and rules
• 14:48
  Speaker 1: and regulations could be changed. But unless we find a
• 14:51
  Speaker 1: way to regulate public pensions and they think their sovereigns,
• 14:54
  Speaker 1: so there really isn't. This cycle is probably going to
• 14:57
  Speaker 1: go on again. All Right, We're gonna leave it there.
• 14:59
  Speaker 1: Brian an Old's asset class strategist US Cash Equities for
• 15:03
  Speaker 1: it can accord a genuity. Saturday was the day that
• 15:21
  Speaker 1: we received Warren Buffett's annual letter, but this time around
• 15:26
  Speaker 1: it was shorter than usual. It didn't have a ton
• 15:29
  Speaker 1: of huge ideas, but if you dig beneath the surface,
• 15:32
  Speaker 1: it said quite a bit. Katherine Chilinski joins US now.
• 15:35
  Speaker 1: She's US finance reporter for Bloomberg News who spent her
• 15:39
  Speaker 1: entire weekend eating pizza in the office while covering this letter.
• 15:43
  Speaker 1: Thank you so much for being here. So, uh, what
• 15:46
  Speaker 1: stood out to me? And then I want to ask
• 15:48
  Speaker 1: if if this sort of was your big takeaway was
• 15:50
  Speaker 1: that Berkshire Hathaway his company really can't find a good
• 15:55
  Speaker 1: acquisition target. They called it at a drought. I mean,
• 15:59
  Speaker 1: last year was in a great year for them finding
• 16:01
  Speaker 1: deals that they liked. Buffett clarified that like a lot
• 16:04
  Speaker 1: of it was prices that prices for businesses we're reaching
• 16:08
  Speaker 1: all time highs and um, the availability of cheap debt
• 16:13
  Speaker 1: has made it just even more hard to actually find
• 16:15
  Speaker 1: what they've been looking for. Let's talk about the company
• 16:18
  Speaker 1: Berkshire Hathway. It is an insurance business as much as
• 16:22
  Speaker 1: anything else. Correct now it's actually tilted a lot towards
• 16:25
  Speaker 1: UM kind of non insurance operators manufacturing, but insurance is
• 16:29
  Speaker 1: a good chunk of it. And we saw in this
• 16:31
  Speaker 1: reason earning. Sometimes when insurance goes bad, like with the hurricanes, UM,
• 16:34
  Speaker 1: it can, it can really hurt your earnings of it.
• 16:37
  Speaker 1: So if they're shifting their attention to what industrial companies
• 16:41
  Speaker 1: with the purchase previously of Burlington Northern Santa fe uh,
• 16:46
  Speaker 1: the Precision cast Parts was a huge one he struck recently. UM.
• 16:50
  Speaker 1: He praised that CEO Mark Donegan in the letter, which
• 16:53
  Speaker 1: is I think that's always sort of telling you wanna
• 16:55
  Speaker 1: you know. UM, a couple of managers often get a
• 16:58
  Speaker 1: heaping of praise over in the letter, and Mark Donnegan
• 17:01
  Speaker 1: was a huge one. So he also has a record
• 17:05
  Speaker 1: cash bile of a hundred and sixteen billion dollars right
• 17:08
  Speaker 1: now largely held in T bills. This is burning a
• 17:12
  Speaker 1: hole in their pocket. They want to put it to work.
• 17:15
  Speaker 1: The fact that they did say there was this dearth
• 17:18
  Speaker 1: of opportunities, does that indicate something bigger about the markets
• 17:23
  Speaker 1: and kind of perhaps that Warren Buffett sees things as
• 17:27
  Speaker 1: vastly overvalued. I mean, I think you can sort of
• 17:31
  Speaker 1: deduce that. Yeah, it means things aren't great. I mean,
• 17:34
  Speaker 1: Buffett does tend to play best when things are are faltering,
• 17:37
  Speaker 1: and he can kind of step in with his UM
• 17:40
  Speaker 1: investing knowledge and provide some lifelines. I think he did
• 17:43
  Speaker 1: say you know that he wants to make one or
• 17:45
  Speaker 1: more huge acquisitions. It's also a thing of he really
• 17:48
  Speaker 1: needs large acquisitions to really bolster earnings because Berkshire has
• 17:53
  Speaker 1: gotten so huge, although some of those attempts have gotten
• 17:57
  Speaker 1: stymied in the past. Right last year it was kind
• 18:00
  Speaker 1: of it was it was rough. Kraft Heinz tried to
• 18:03
  Speaker 1: approach you know, Lever and that sort of fell apart.
• 18:06
  Speaker 1: They didn't want to do a hostile takeover Berkshire's UM
• 18:08
  Speaker 1: pretty um, they don't like those in general. And then
• 18:12
  Speaker 1: um they also bid for an energy company and that
• 18:15
  Speaker 1: they were bested in that attempt and it was a
• 18:18
  Speaker 1: rough gear. Talk about healthcare for just a moment, because
• 18:22
  Speaker 1: of course, UH, JP Morgan Chase, as well as Amazon
• 18:26
  Speaker 1: and Berkshire Hathway have all spoken about and as yet
• 18:31
  Speaker 1: unspecified healthcare initiative. Todd Combs, who is uh one of
• 18:37
  Speaker 1: the top people at Berkshire Hathaway, is also on the
• 18:39
  Speaker 1: board of JP Morgan and UM, one if you offer,
• 18:42
  Speaker 1: is there any idea of what it is they're going
• 18:44
  Speaker 1: to be talking about? Buffett talked about it a little
• 18:48
  Speaker 1: this morning, and I think it's interesting. I mean, Todd Combs,
• 18:50
  Speaker 1: he's one of his Buffett's investing deputies, but he's gotten
• 18:53
  Speaker 1: a lot of power with this healthcare adventure. I mean
• 18:55
  Speaker 1: he's been, um, you know, part of the one of
• 18:58
  Speaker 1: the people tasked was sort of helping create it. And um,
• 19:01
  Speaker 1: even Buffett himself said today that, you know, um, Buffett
• 19:04
  Speaker 1: agrees that this is a huge cost problem that they
• 19:07
  Speaker 1: need to tackle, but even Todd was working really hard
• 19:11
  Speaker 1: at kind of figuring out ways they could do it.
• 19:13
  Speaker 1: They still don't have a CEO for that venture, so
• 19:15
  Speaker 1: I think that will be really interesting to sort of
• 19:17
  Speaker 1: see who will actually sort of take charge. Well, it
• 19:20
  Speaker 1: was interesting to actually hear what warm Buffett had to
• 19:22
  Speaker 1: say on this. He said, uh, that there certainly is
• 19:26
  Speaker 1: pricing power when you're this big, but that was just
• 19:28
  Speaker 1: a little bit of it. That this healthcare venture would
• 19:31
  Speaker 1: go much further. What does that mean? I thought it
• 19:34
  Speaker 1: was interesting. I mean, he said, you know, yeah, it
• 19:36
  Speaker 1: might be kind of easy to shave off three or
• 19:38
  Speaker 1: four percent of costs in this in this thing because
• 19:41
  Speaker 1: of their negotiating power, but they want to do more.
• 19:44
  Speaker 1: And I think that speaks to the the desire for
• 19:48
  Speaker 1: Buffett and these two other large companies to really sort
• 19:51
  Speaker 1: of do more of a systemic kind of overram. I mean,
• 19:55
  Speaker 1: they said it will focus on their companies to begin with,
• 19:58
  Speaker 1: but there's kind of an idea that this is going
• 20:00
  Speaker 1: to spread much larger. To the extent of like how
• 20:02
  Speaker 1: it will, we're not totally sure yet. Also, the company
• 20:05
  Speaker 1: has been behind the shares of Apple while it's been
• 20:08
  Speaker 1: selling the shares of IBM. It's kind of a whole
• 20:11
  Speaker 1: new world for a Buffet, right. He stood by IBM
• 20:14
  Speaker 1: for a long time, even when people, I think we're
• 20:17
  Speaker 1: starting to question why. Um, he noted today it was
• 20:20
  Speaker 1: you know it wasn't a great idea, and yeah, Apple
• 20:24
  Speaker 1: has continued to be kind of one of their favorite
• 20:26
  Speaker 1: bets over the past year. Um It'll be interesting to
• 20:28
  Speaker 1: see whether that kind of continues or if um or
• 20:32
  Speaker 1: if they kind of go somewhere else with this new
• 20:34
  Speaker 1: sort of technology. Bent. Thank you so much for joining
• 20:37
  Speaker 1: us and for following this, and I'm sure we'll be
• 20:39
  Speaker 1: talking more about it in the days become Katherine Chilensky,
• 20:41
  Speaker 1: US finance reporter for Bloomberg News who will be heading
• 20:46
  Speaker 1: out to Omahash shortly. Thank you so much for being
• 20:49
  Speaker 1: with us. And of course, Pim, I would be remiss
• 20:52
  Speaker 1: and not mentioning at some point airlines since I know
• 20:55
  Speaker 1: you receive airlines weekly and enjoy He likes airlines. He
• 21:00
  Speaker 1: does like airlines. Who do they make money? But to
• 21:04
  Speaker 1: potentially buy one, potentially own one, uh interesting buff air
• 21:10
  Speaker 1: buff air I think a lot of people would a
• 21:12
  Speaker 1: diet coke and everything would be economy class if if
• 21:17
  Speaker 1: that's that would be a luxury on the person. We
• 21:21
  Speaker 1: will we will continue discussing offline what buffet airlines would
• 21:25
  Speaker 1: look like. Jijing Ping's decision to step aside from China's
• 21:44
  Speaker 1: typical presidential term limits is making it seem as though
• 21:48
  Speaker 1: he might just indefinitely be in charge of China. And
• 21:53
  Speaker 1: here to tell us more about the Chinese political world
• 21:56
  Speaker 1: and what it means for all of us is Mike McDonough.
• 21:58
  Speaker 1: He is of Bloomberg Anonymous, and he joins us here
• 22:01
  Speaker 1: in our eleven three oh studios. Mike, So, what about
• 22:04
  Speaker 1: this idea that the Ping demonstrating a willingness to sidestep
• 22:10
  Speaker 1: tradition when it comes to Chinese? Uh, you know, the
• 22:15
  Speaker 1: idea of who rules China and for how long? Well,
• 22:17
  Speaker 1: this isn't a new idea of so to say, Um,
• 22:20
  Speaker 1: there was the idea existed when they were having their
• 22:23
  Speaker 1: last big meeting that there was going to be some
• 22:25
  Speaker 1: signals that he would try to remain in power beyond
• 22:29
  Speaker 1: five years. I think that actually many people had expected this. Uh.
• 22:34
  Speaker 1: I think the timing of this particular announcement has surprised
• 22:37
  Speaker 1: a lot of people, Like why now? Uh? And I
• 22:40
  Speaker 1: think that has more to do with the economic outlook
• 22:43
  Speaker 1: than any any type any other reason really, And I'll
• 22:48
  Speaker 1: elaborate on that. So you know, right now things are
• 22:51
  Speaker 1: relatively stable in China. The economy looks pretty good. She's
• 22:55
  Speaker 1: I don't know if he really has an approval rating,
• 22:57
  Speaker 1: but if he did, it would be rather high right now,
• 22:59
  Speaker 1: So it seems like good time to put this kind
• 23:02
  Speaker 1: of measure through because when you look ahead, um, you know,
• 23:05
  Speaker 1: especially going into the economic the global economic environment could
• 23:09
  Speaker 1: become a little bit more turbulent, so it might be
• 23:12
  Speaker 1: more it's more difficult to make this sort of announcement
• 23:14
  Speaker 1: when things are um more volatile, maybe markets are selling off,
• 23:19
  Speaker 1: maybe confidence isn't as high, whereas you could just do
• 23:21
  Speaker 1: it right now. Well, but let's talk about the implications
• 23:24
  Speaker 1: of this. Some people are saying that this gives Jejimping
• 23:28
  Speaker 1: more power to deal with the US more harshly with
• 23:31
  Speaker 1: trade negotiations. Others are saying he's taking a page from
• 23:35
  Speaker 1: Vladimir Putin, President of Russia in consolidating his power. Uh,
• 23:40
  Speaker 1: do you've used this as some sort of authoritarian move
• 23:44
  Speaker 1: that could end up creating bigger trade and other skirmishes. Well,
• 23:49
  Speaker 1: I mean anytime somebody is is in office and reduces
• 23:53
  Speaker 1: non produces, eliminates term limits that there's some indication there
• 23:56
  Speaker 1: that there's some consolidation of power. It was also announced
• 23:59
  Speaker 1: that he was going to be formalizing I think an
• 24:01
  Speaker 1: anti gaff department, uh if I if I read the
• 24:04
  Speaker 1: release properly, uh so. But I don't think this increases
• 24:08
  Speaker 1: his power per se, at least not in the near term,
• 24:10
  Speaker 1: because you know, he already had his name put into
• 24:13
  Speaker 1: the party constitution, so all of the things that he needed,
• 24:17
  Speaker 1: he has all that. He already has all of the
• 24:19
  Speaker 1: titles he needs. Uh. And he already has his name
• 24:21
  Speaker 1: in the constitution, which is something that certainly gives him
• 24:25
  Speaker 1: the power he would need to have these kind of fights. Uh.
• 24:28
  Speaker 1: And I think that when it comes to dealing with
• 24:32
  Speaker 1: the US, I think it's going to be a kind
• 24:33
  Speaker 1: of quid pro quo. Uh if we if we cross
• 24:38
  Speaker 1: what they perceived to be aligned, then they'll come back
• 24:40
  Speaker 1: and hit us with with something else. The question really
• 24:43
  Speaker 1: that everybody has his where exactly is that line? And
• 24:45
  Speaker 1: that's what we don't know. Uh. The Chinese will probably
• 24:47
  Speaker 1: be willing to accept some marginal protectionism, but not anything
• 24:52
  Speaker 1: widespread like, uh, you know, thirty percent tariff against Chinese
• 24:55
  Speaker 1: imports or something of that nature. Mike, when you talk
• 24:59
  Speaker 1: about the politicals situation in China, does this then indicate
• 25:02
  Speaker 1: that while he may have President Jumping may have more power.
• 25:08
  Speaker 1: That also means more responsibility and responsibility for many things
• 25:12
  Speaker 1: that are not controllable by one person. And I'm thinking
• 25:15
  Speaker 1: they're about the debt that Chinese companies have burdened. Sure, Sure,
• 25:21
  Speaker 1: but I was alluding to when I said the long
• 25:22
  Speaker 1: term outlook is less certain and there could be some
• 25:25
  Speaker 1: volatility on the horizon. It's not just globally. What I
• 25:28
  Speaker 1: meant by globally is you're gonna have a bunch of
• 25:29
  Speaker 1: central banks, including the FED, shrinking their balance sheets, tightening
• 25:33
  Speaker 1: e C, B, B o J, eventually the BOE. So
• 25:36
  Speaker 1: that's going to cause some global turmoil potentially. But within China,
• 25:39
  Speaker 1: you do have the debt situation. The government's trying to
• 25:42
  Speaker 1: de leverage while also rebalance the economy and sustained growth
• 25:45
  Speaker 1: at a reasonable pace or what they believe to be
• 25:48
  Speaker 1: a reasonable, reasonable path pace. And it's unlikely to be
• 25:52
  Speaker 1: a linear, straight um move. You're gonna see a lot
• 25:55
  Speaker 1: of altility. You're gonna have periods of time where people
• 25:58
  Speaker 1: are panicked. People are going to say China's headed towards
• 26:01
  Speaker 1: another hard landing, And that's not really a great time
• 26:04
  Speaker 1: to make this sort of announcement that probably won't be
• 26:06
  Speaker 1: the case in China. Whenever you know, everybody looks at
• 26:10
  Speaker 1: China and panic or euphoria, there's never any like kind
• 26:12
  Speaker 1: of median view on China. So um, you are you
• 26:16
  Speaker 1: are going to have those cases coming sometime over the
• 26:18
  Speaker 1: next couple of years where people look at China in
• 26:20
  Speaker 1: a panicked way. Uh. And you don't want to have
• 26:23
  Speaker 1: to be juggling this announcement while that happens. And he
• 26:26
  Speaker 1: doesn't have he he does have more control than probably
• 26:30
  Speaker 1: any other leader of any major large country just because
• 26:34
  Speaker 1: China does have such a closed economy. But he doesn't
• 26:37
  Speaker 1: have complete control. And we've seen that over the past
• 26:39
  Speaker 1: two or three years when we have had these panics,
• 26:42
  Speaker 1: you know, be a capital outflows, be it what happened
• 26:44
  Speaker 1: in the equity market. Uh. So you know, it's it's
• 26:46
  Speaker 1: going to be a tricky thing to manage for anyone, um,
• 26:50
  Speaker 1: including president over the next five to ten years. In China.
• 26:54
  Speaker 1: You mentioned the anti graphic unit that he's pulling together,
• 26:57
  Speaker 1: and I'm struck by the on Bog seizure and the
• 27:01
  Speaker 1: potential asset sales and the h and A move that
• 27:05
  Speaker 1: the Chinese government made. I'm just wondering if his consolidation
• 27:10
  Speaker 1: of power and this sort of extension of his potential
• 27:13
  Speaker 1: term uh in perpetuity, whether that gives him more power
• 27:17
  Speaker 1: to go after specific companies that might otherwise have been
• 27:21
  Speaker 1: politically connected. I mean, it certainly helps increase his control
• 27:27
  Speaker 1: over gain gain some power. But like when you look
• 27:30
  Speaker 1: at um what these companies did and how the government reacted,
• 27:35
  Speaker 1: you know, they have been identifying issues with these companies
• 27:38
  Speaker 1: for quite some time. In fact, they redid the rules
• 27:41
  Speaker 1: on outward investment by Chinese companies and citizens based on
• 27:46
  Speaker 1: some of the mistakes they perceived these companies had made.
• 27:50
  Speaker 1: Uh you know how long ago did they do that?
• 27:52
  Speaker 1: That was around September. I think it was the late
• 27:56
  Speaker 1: summer that they announced that. So you you saw this
• 28:00
  Speaker 1: big surge uh in Chinese companies buying US companies. I
• 28:03
  Speaker 1: made this chart ages ago. I should find it. Um,
• 28:06
  Speaker 1: you saw this big surge leading and all of a sudden,
• 28:09
  Speaker 1: I guess it was late twenties sixteen, early seventeen, it
• 28:13
  Speaker 1: just went to practically zero. And that was when the
• 28:15
  Speaker 1: government said, everyone stopped what you're doing. We're going to
• 28:19
  Speaker 1: put out some new guidelines on what you can and
• 28:21
  Speaker 1: cannot invest into like I think now you can't buy
• 28:24
  Speaker 1: into casinos, for example, or sports teams. These have been banned.
• 28:27
  Speaker 1: Uh and really the the things that you need to
• 28:30
  Speaker 1: target or things that could long term benefit China's economy,
• 28:33
  Speaker 1: you know, uh, raw material companies, technology companies, etcetera, not
• 28:39
  Speaker 1: sports teams. So in other words, the stage has been
• 28:41
  Speaker 1: set for a while. This is yet another move at
• 28:44
  Speaker 1: a long train of events that have consolidated his power.
• 28:48
  Speaker 1: And certainly, I said, most people were expecting signs of
• 28:50
  Speaker 1: this to have occurred earlier, late last year, earlier this year,
• 28:54
  Speaker 1: and this is just verification of what a lot of
• 28:56
  Speaker 1: people had anticipated. Mike mcdonog, Bloomberg Economist, Thank you so
• 28:59
  Speaker 1: much for joy us in our eleven three oh studios.
• 29:07
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 29:10
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 29:14
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 29:17
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 29:21
  Speaker 1: It's one before the podcast. You can always catch us
• 29:24
  Speaker 1: worldwide on Bloomberg Radio