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Facebook Will Have To Rein In Sale Of Data: McNamee (Podcast) · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing 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. So, Lisa, one of the names
0:21
Speaker 1: that's been under a little bit of pressure that was
0:23
Speaker 1: once a darling is Facebook. The stock is off about
0:26
Speaker 1: ten percent over the last twelve months. It's well off.
0:30
Speaker 1: It's high dollars to share now uh trading at about
0:33
Speaker 1: a hundred sixty dollars to share. And I think one
0:35
Speaker 1: of the major issues has been the regulatory risk associated
0:39
Speaker 1: with this name. I think, you know, the company has
0:41
Speaker 1: really face pressure from users and from regulators concerned about
0:45
Speaker 1: data privacy and data integrity, and it really has been
0:47
Speaker 1: weighing on the stock. One thing that I think is
0:49
Speaker 1: interesting is is the pressure on the stock really the
0:53
Speaker 1: fact of data privacy and concerns by consumers or is
0:57
Speaker 1: it really a public relations disaster And the fact that
0:59
Speaker 1: Mark's Uckerberg and Cheryl Sandberg have not addressed some of
1:02
Speaker 1: the concerns head on, been transparent with what they planned
1:05
Speaker 1: to do and push forward with a concrete plan. I mean, honestly,
1:10
Speaker 1: Congress isn't exactly about to regulate these companies, but certainly
1:13
Speaker 1: there has been a lack of response that has certainly
1:16
Speaker 1: not been to the pleasure of shareholders. Yeah, I think
1:18
Speaker 1: you're absolutely right. I think they have been losing and
1:21
Speaker 1: are losing the public relations fight. They were certainly late
1:25
Speaker 1: to respond to some of these issues, uh and then
1:28
Speaker 1: arguably their response uh on once they made one wasn't
1:31
Speaker 1: forceful enough, And there's certainly concerns they're about any regulatory risk,
1:36
Speaker 1: not just for Facebook, but for social media in general.
1:38
Speaker 1: The lasting tech investors want is uh US regulatory oversight
1:42
Speaker 1: on their business. You know. Honestly, though, I have to
1:44
Speaker 1: wonder what kind of pressure there is to regulate these companies,
1:48
Speaker 1: because there's sort of a trade off with a lot
1:50
Speaker 1: of people being happy to get the free services of
1:53
Speaker 1: a Facebook or an Instagram uh in order to give
1:56
Speaker 1: up their privacy. Someone who has delved a lot into
1:58
Speaker 1: this is Roger mcnameee. He's co founder of Elevation Partners,
2:02
Speaker 1: in Menlo Park, California. He also performs in a band
2:05
Speaker 1: Moon Alice, where he plays the bass and the guitar.
2:08
Speaker 1: He just wrote a new book, Zucked, Waking Up to
2:10
Speaker 1: the Facebook Catastrophe, and Roger, We're so happy to have
2:13
Speaker 1: you here. You mentored Mark Zuckerberg, you were part of
2:18
Speaker 1: the inception of Facebook, and now you're speaking out against
2:21
Speaker 1: this company. Why so, Lisa, It's really simple. I met
2:26
Speaker 1: Mark when he was twenty two years old and Facebook
2:29
Speaker 1: was two years old, back in two thousand six. I
2:31
Speaker 1: helped him solve a problem. For three years thereafter, I
2:35
Speaker 1: was one of his advisors. I helped to bring in
2:37
Speaker 1: Cheryl Sandberg as the chief operating officer. You could not
2:41
Speaker 1: find a bigger cheerleader Facebook than me, and candidly, I
2:45
Speaker 1: missed a few things that in retrospect I really wish
2:48
Speaker 1: I had understood better at the time. But in I
2:51
Speaker 1: started well to be clear and twenty let me tell
2:54
Speaker 1: you what I saw, because there were earlier examples of this,
2:57
Speaker 1: But in ten I started to see cases where the
3:00
Speaker 1: where bad people, bad actors were using the advertising tools,
3:05
Speaker 1: the business model, and the algorithms of Facebook to harm
3:09
Speaker 1: innocent people, and they were doing it in civil rights.
3:11
Speaker 1: For example, there was a company that was scraping. They
3:14
Speaker 1: were using the ad tools to gather data about people
3:17
Speaker 1: who expressed an interest in Black Lives Matter, and they
3:20
Speaker 1: were selling that data to police departments for profit, in
3:23
Speaker 1: clear violation of the Fourth Amendment, and Facebook expelled the company,
3:28
Speaker 1: but not until the harm had been done. Then, in
3:30
Speaker 1: the Brexit referendum in the United Kingdom, it was very
3:34
Speaker 1: clear that Facebook advertising tools had given a huge advantage
3:39
Speaker 1: to the Leave campaign because the incendiary message that the
3:44
Speaker 1: Leave campaign was using, which was really xenophobic, blaming every
3:47
Speaker 1: problem in the United Kingdom, both real and imagine, on immigrants,
3:52
Speaker 1: and that that message spreads so much faster, so much
3:56
Speaker 1: further than the very neutral message of the Remain campaign,
4:00
Speaker 1: that it was undermining democracy. And then later in the
4:03
Speaker 1: year of the Department of Housing Nervan Development cited Facebook
4:08
Speaker 1: for advertising tools that allowed discrimination based on race in
4:12
Speaker 1: the housing market. And that's when I reached out to
4:15
Speaker 1: Mark Zuckerberg and Cheryl Sandbrand said, guys, there's something wrong here.
4:21
Speaker 1: The business model, the algorithms are letting bad people harm
4:26
Speaker 1: innocent people. And I spent three months pleading with them.
4:31
Speaker 1: You know, beginning nine days before the election and continuing
4:33
Speaker 1: for three months after. So, Roger, I mean to that issue,
4:37
Speaker 1: do you think Mark Zuckerberg is a bad guy or
4:39
Speaker 1: is he just toned deaf to this? I don't think
4:41
Speaker 1: any of them are bad people. Okay, And here's the
4:43
Speaker 1: problem is, it's not just Facebook. The issue is success
4:47
Speaker 1: has blinded them in some really important ways. You know,
4:52
Speaker 1: when these companies started, they were you know, they had
4:54
Speaker 1: a hacker mentality, you know, move fast and break things.
4:58
Speaker 1: That was Facebook's mone and that was cute when they
5:01
Speaker 1: were little. But when you're at global scale and your algorithms,
5:06
Speaker 1: your code has more influence on people's lives than the
5:09
Speaker 1: law does, when your product has more influence on politics
5:14
Speaker 1: anybody else. At that point, you have really serious responsibilities
5:17
Speaker 1: and if you refuse to take those on, then there's
5:20
Speaker 1: something really really wrong. And it's not because these are
5:22
Speaker 1: bad people, but it is because they're blind and it's
5:25
Speaker 1: not just Facebook. So the critical thing here is is
5:31
Speaker 1: I don't think they can fix it anymore. We have
5:34
Speaker 1: given them two years to stand up and take responsibility.
5:37
Speaker 1: They have to change the business model, we have to
5:39
Speaker 1: change the incentives. We have to basically ask questions that
5:44
Speaker 1: we didn't have to ask for fifty years when technology
5:47
Speaker 1: was completely trustworthy and always made our lives better. Now
5:50
Speaker 1: we have to be skeptical. We have to recognize that
5:53
Speaker 1: these are potentially dangerous tools, and just like a dangerous
5:57
Speaker 1: tool and a factory, just like you know, like the
6:00
Speaker 1: the instruments a doctor would use for surgery, These are
6:03
Speaker 1: not playthings. You have to be really careful. We have
6:06
Speaker 1: to ask questions we haven't asked before. So, Roger, why
6:09
Speaker 1: is it Why is it legal to sell people personal
6:12
Speaker 1: financial data? Right? I mean that kind of stuff, that
6:14
Speaker 1: kind of invasion of privacy is standard now, and we
6:17
Speaker 1: don't benefit from that, we're actually harmed by it. Hold
6:20
Speaker 1: on a second. This is actually really relevant because we're
6:21
Speaker 1: gonna be speaking later about how Google and UH or
6:25
Speaker 1: actually excuse me, Apple and Goldman Sacks are teaming up
6:28
Speaker 1: to create a new credit card that has UH some
6:31
Speaker 1: kind of seamless connection to the iPhone, and I'm wondering,
6:34
Speaker 1: does that raise concerns to you about privacy and what
6:37
Speaker 1: people are basically jeopardizing. Well, actually, Apple has been one
6:40
Speaker 1: of the good guys on this issue. So their Apple
6:43
Speaker 1: Pay product sends literally the bare minimum of data, so
6:48
Speaker 1: nothing goes to the vendor and the credit card processor
6:51
Speaker 1: only gets the minimum information for credit card processing. The
6:54
Speaker 1: problem is that the credit card processors this will becomes
6:57
Speaker 1: like Experience and Transit ins Union, um, those guys. They
7:02
Speaker 1: then sell that data to anybody who wants to buy it,
7:05
Speaker 1: and that's where the problem occurs. So I think, what
7:07
Speaker 1: relative to the Apple thing. I think Apple is not
7:10
Speaker 1: a perfect company, but on these issues they really are
7:13
Speaker 1: on the side of the angels and they really are
7:15
Speaker 1: trying to help us. And I think if Apple has
7:18
Speaker 1: such a huge advantage over the Android world, which is
7:21
Speaker 1: Samsung and all the other vendors, that it really is
7:25
Speaker 1: better to own an iPhone because they really are protecting
7:28
Speaker 1: you more. But the thing for everybody remembers we have
7:31
Speaker 1: a lot of power here. This is not inevitable, it's
7:34
Speaker 1: not hopeless. This is going to be a big issue
7:36
Speaker 1: in and it's going to be a right versus wrong issue,
7:39
Speaker 1: not right versus left. Both political parties are going to
7:43
Speaker 1: be engaged in this because it's it's literally a tiny
7:46
Speaker 1: number of people benefiting against nine percent of the country
7:50
Speaker 1: being harmed. And and as a consequence, I think there's
7:54
Speaker 1: going to be a lot of really constructive worked up,
7:56
Speaker 1: particularly after the election too. You know rain In the
8:02
Speaker 1: sale of data to rain In. You know, you know
8:05
Speaker 1: all the medical information that you see online is filled
8:08
Speaker 1: with errors, right. You know, You've got things like YouTube
8:11
Speaker 1: promoting conspiracy theories like like flat Earth kids coming home
8:16
Speaker 1: from school and saying World War two never happened. I
8:17
Speaker 1: know this is definitely going to be an ongoing concerned
8:20
Speaker 1: Rocher Macnimy. I wish we had more time. I'm sorry,
8:22
Speaker 1: we have to leave it there. Rocher Macnimy a noted
8:24
Speaker 1: tech venture capitalist, co founder of Elevation Partners, and author
8:27
Speaker 1: of zuckt Waking Up to the Facebook Catastrophe. So we're
8:48
Speaker 1: hearing more talk about trade discussions between the US and China. No,
8:52
Speaker 1: this is not, but here we are, and it sounds
8:57
Speaker 1: like there have been some, uh some measures taken to
9:01
Speaker 1: move forward, at least when it comes to agricultural joining
9:03
Speaker 1: us here in our Bloomberg Interactive Broker Studios. Andy Brown,
9:06
Speaker 1: editorial director for the Bloomberg New Economy Forum. Uh, and Andy,
9:11
Speaker 1: so glad to have you here. Just give us the latest.
9:15
Speaker 1: What do you think is the most meaningful progress made
9:18
Speaker 1: on trade talks, if any that we've heard. So we've
9:22
Speaker 1: got a plethora of m o U s on the
9:25
Speaker 1: negotiation right now, and it looks like we're going to
9:28
Speaker 1: get some kind of an agreement. The head of the
9:31
Speaker 1: Chinese delegation, Leo hu, is supposed to be meeting President
9:35
Speaker 1: Trump on Friday. The big question, as always is whether
9:40
Speaker 1: or not we're going to get a deal that alters
9:42
Speaker 1: the balance of trade without fundamentally addressing issues around the
9:47
Speaker 1: terms and conditions of trade soybeans versus antellectual property exactly right. So,
9:52
Speaker 1: so initially, I mean, I think that there's a deal
9:54
Speaker 1: on the table for thirty billion dollars a year of
9:57
Speaker 1: Chinese buying US agricultural products and soybeans and corn. A
10:01
Speaker 1: couple of questions, is thirty billion? Is that a big,
10:03
Speaker 1: big number? It sounds like a big number. Yeah, Well
10:06
Speaker 1: is it a big number? I mean, all numbers for
10:08
Speaker 1: China are big, right. It's a huge economy, is is it? Well,
10:11
Speaker 1: second largest economy. Look, the trade staff is the easy stuff.
10:16
Speaker 1: This is the low hanging fruit. Okay. Actually, China on
10:19
Speaker 1: the trade front is relatively well behaved. It doesn't manipulate
10:23
Speaker 1: its currency really anymore. It roughly, it runs a trade balance.
10:28
Speaker 1: It's more or less trade and balance for the rest
10:30
Speaker 1: of the world. It understands it can't borrow growth from
10:33
Speaker 1: the rest of the world because it's too big to
10:35
Speaker 1: grow by exports, and so it is developing domestic consumption
10:39
Speaker 1: as a main driver of growth. So, you know, you
10:42
Speaker 1: could say that in this area is in China's interest
10:45
Speaker 1: to you know, be nudged along if you like, by
10:48
Speaker 1: Trump and his negotiating team. So we're likely to see
10:51
Speaker 1: more of that. Sure, that's the easy stuff China will buy.
10:54
Speaker 1: The question actually is whether it's going to buy additionally,
10:56
Speaker 1: whether it's just going to buy more from the US
10:59
Speaker 1: and let from the from the rest of the world
11:01
Speaker 1: and leave the overall balance unchanged. The other big question
11:05
Speaker 1: is how China is using trade as a negotiating tactic
11:08
Speaker 1: with US allies. Overnight, there was a report out of
11:11
Speaker 1: Reuters that China was restricting coal imports from Australia as
11:16
Speaker 1: a result of perhaps and this is speculation, the fact
11:20
Speaker 1: that Australia was reluctant to use Huahwei and their products
11:24
Speaker 1: in their five G outgrowth. I'm just wondering, is this
11:27
Speaker 1: a concerted effort by China to go after US allies
11:31
Speaker 1: or anyone who does not embrace Huawei and its technologies. Yeah,
11:35
Speaker 1: you know, this is this is really difficult to divine.
11:37
Speaker 1: I mean, you know, is this a random act by
11:40
Speaker 1: a Chinese poet or is it a concerted effort to
11:43
Speaker 1: you know, reduce imports of Australian cult. What we have seen,
11:48
Speaker 1: of course, is China lashing out at US allies, particularly Canada,
11:54
Speaker 1: because it's not it doesn't want to take on the
11:56
Speaker 1: US and muddy the muddy the water does will make
11:58
Speaker 1: the trade talks even more acrimonious. And they are so
12:01
Speaker 1: He's they're going after the allies. So basically they're going
12:03
Speaker 1: to become Canada becomes the whipping boy because the US
12:07
Speaker 1: is too big to abuse pretty much. Yeah, where Canada? Andy?
12:12
Speaker 1: How about some of the real heart issues out there,
12:15
Speaker 1: aside from agricultural products, you know, when it's you know,
12:17
Speaker 1: data theft, data privacy, the technology theft and all those
12:21
Speaker 1: touch types of things that really key issues intellectual property,
12:24
Speaker 1: Are those even on the table, do you think? Yeah?
12:26
Speaker 1: I mean China. Look, let's be fair, China has made
12:29
Speaker 1: pretty pretty good progress, I think on protecting intellectual property.
12:35
Speaker 1: The main reason it's made progress in that area because
12:37
Speaker 1: it's good for China. Okay, Uh, it's Chinese private entrepreneurs
12:41
Speaker 1: that complain about this as much as the foreigners do,
12:43
Speaker 1: so it's in their interests and so we are seeing
12:45
Speaker 1: progress on that front. We do, however, have to be
12:49
Speaker 1: we have to moderate our expectations about what the Chinese
12:53
Speaker 1: are able to deliver in terms of changes to their
12:57
Speaker 1: state run economy. Okay, this problem access to the Chinese
13:01
Speaker 1: market privileged. Uh, your privileges for Chinese state owned enterprises.
13:07
Speaker 1: This isn't going to be fixed with one trade deal.
13:10
Speaker 1: This is part of a long, protracted, painful process. Andy,
13:14
Speaker 1: I want to go a little bit broader here because
13:16
Speaker 1: I've read a number of essays talking about how the
13:19
Speaker 1: tit for tat that we're seeing is just basically the
13:22
Speaker 1: tip of the iceberg when it comes to the deep
13:24
Speaker 1: conflict between the US and China, which is the battle
13:27
Speaker 1: for supremacy over the global economy, and that it is
13:31
Speaker 1: right now on a path to end up with even
13:34
Speaker 1: more tensions, and people have hinted it military altercations, etcetera.
13:38
Speaker 1: Do you think that that is accurate, that what we're
13:41
Speaker 1: seeing right now is a manifestation of tensions that have
13:43
Speaker 1: been building, uh, and that really cannot get resolved in
13:47
Speaker 1: any kind of easy way. Yeah, I think I think
13:49
Speaker 1: that pretty much answers your own question. I mean, um, uh,
13:53
Speaker 1: these these deeper issues of US China competition for technological supremacy,
14:00
Speaker 1: the industries of the future, artificial intelligence, electric vehicles, that's
14:04
Speaker 1: really the deeper dispute behind what we're seeing now and
14:08
Speaker 1: and and it's all playing out we talked about We
14:10
Speaker 1: started this conversation by talking about Huawei, and that's where
14:13
Speaker 1: the real battle now is playing out. Okay, So, given
14:16
Speaker 1: your decades in China, do you think that China right
14:19
Speaker 1: now is equipped with the governance and the economy to
14:24
Speaker 1: gain the lead in this battle? Not not Not only
14:28
Speaker 1: has China equipped, it is already in some areas gaining
14:32
Speaker 1: the lead. I mean it's almost there. When it comes
14:34
Speaker 1: to artificial intelligence on you know, gene editing, it may
14:38
Speaker 1: well be more advanced in the United States. I mean
14:41
Speaker 1: an area after area China is getting close is getting
14:45
Speaker 1: close to or you know, is right up there, and
14:49
Speaker 1: you know, at the frontiers of tech of technology, and
14:53
Speaker 1: that's what's that's what has right in the US and
14:55
Speaker 1: that is what the Huawei battle is all about. Who
14:59
Speaker 1: was more incentive, in your opinion, to really come to
15:01
Speaker 1: the table and negotiate the very difficult issues. You see
15:05
Speaker 1: the Chinese economy slowing, maybe it's slowing even more than
15:08
Speaker 1: we think, but of course we have incentives. Yeah, China.
15:11
Speaker 1: Of course, the slowing economy puts A. J Ping under pressure.
15:14
Speaker 1: But look, four decades of development tells China that it's
15:18
Speaker 1: state owned, its state run. State capitalism works for China,
15:23
Speaker 1: all right. The system has delivered rapid growth for decades.
15:27
Speaker 1: It's lifted hundreds of millions of people out of poverty,
15:30
Speaker 1: It's given China great a great deal of innovation, and
15:34
Speaker 1: it's not about to abandon all that to Trump. Although
15:38
Speaker 1: I will say there are a lot of people who
15:40
Speaker 1: think that President jij and Ping has actually taken the
15:42
Speaker 1: country backward. That's that that that is that is certainly
15:47
Speaker 1: a widely shed a widely held view. And the rest
15:51
Speaker 1: of what particularly his emphasis on the state uh and
15:54
Speaker 1: the discrimination now that private enterprise in China feel that
15:58
Speaker 1: they're operating under but not necessarily locally sure and absolutely
16:04
Speaker 1: in China. Yeah, so you know, on the technology side,
16:07
Speaker 1: is this just investment. Does US just have to step
16:09
Speaker 1: up for investment, And because it seems like China with
16:12
Speaker 1: the state sponsored really competitive on a technology front, China
16:17
Speaker 1: is China is. China is super competitive in technology now,
16:21
Speaker 1: particularly in these areas that it's identified as being key
16:24
Speaker 1: to the future in the in the twenty one century.
16:27
Speaker 1: And many people argue that actually the smartest move that
16:29
Speaker 1: the Americans could make right now is to focus on
16:31
Speaker 1: their own science, focus on technology, focus on getting the
16:34
Speaker 1: economy here straightened out, building the infrastructure, you know, building
16:38
Speaker 1: the foundations for success and growth in over the next years.
16:42
Speaker 1: We'll leave it there, Andy Brown, thank you so much
16:44
Speaker 1: bringing us up to date on what's going on with
16:46
Speaker 1: all things China and easy editorial director Bloomberg New Economy
16:50
Speaker 1: form Well after that December meltdown across the markets has
17:14
Speaker 1: been a significant turnaround for the equity markets, with the
17:17
Speaker 1: SMP up a little over eleven percent year to date.
17:20
Speaker 1: To help us get a sense of how much is
17:21
Speaker 1: left in the equity markets, if any, we bring in
17:24
Speaker 1: Randy Frederick. Randy is a vice president of Trading and
17:27
Speaker 1: Derivatives at the Schwab Center for Financial Research based in Austin, Texas.
17:32
Speaker 1: But joining us in our Bloomberg eleven three oh studios
17:35
Speaker 1: here today, Randy, thanks for joining us. So we've had
17:38
Speaker 1: this big turnaround in the equity markets this year. Uh
17:42
Speaker 1: is it played out? I just head to the beachers.
17:44
Speaker 1: There's still more work to do this year. Well, what's
17:46
Speaker 1: fascinating I think about the turnaround is you think about
17:48
Speaker 1: what's different now versus what was going on in Q
17:51
Speaker 1: four And really when you if you boil it all
17:53
Speaker 1: down to its simplest form, there's really only one big difference,
17:55
Speaker 1: and that is the Fed. Basically, the Fed was seemed
17:58
Speaker 1: very committed to continuing to raise interest trace to continue
18:01
Speaker 1: to shrink its botel sheet in Q four, and they've
18:04
Speaker 1: changed their mind there. Now. I look at the world
18:07
Speaker 1: in strang probabilities screen on Bloomberg every morning. I was
18:10
Speaker 1: looking at yesterday. The odds of a rate hike this
18:12
Speaker 1: year are now zero percent, according to the market. And
18:15
Speaker 1: the Fed isn't always in line with the markets. The
18:16
Speaker 1: markets tend to be ahead of the Fed. But the
18:18
Speaker 1: Fed seems to have caught up and is now going, yeah,
18:20
Speaker 1: you know, maybe we might not in fact that the
18:22
Speaker 1: odds of a cut are higher than that. So that's
18:24
Speaker 1: the big difference, and so as a result, people don't
18:27
Speaker 1: have to worry about interest rates anymore, and retail investors
18:30
Speaker 1: are still a little cautious, but his tutional investors are
18:32
Speaker 1: back on back in the market right now, Paul, to
18:35
Speaker 1: answer the question, yes, both you and I should head
18:37
Speaker 1: to the beach and enjoy yourself the year. So just
18:40
Speaker 1: to answer that question and follow through at the thought, Randy,
18:43
Speaker 1: I would love to get your sense there. There's been
18:44
Speaker 1: a lot of talk about a dissonance between the stock
18:46
Speaker 1: market and the bond market, with stocks rallying and doing
18:49
Speaker 1: well and earnings being strong and bond yields still being
18:52
Speaker 1: incredibly low, especially given the fact that the US is
18:55
Speaker 1: selling a lot of debt deficit is deepening. Do you
18:58
Speaker 1: think there is a disconnect here? Do you think that
19:00
Speaker 1: it's a complete logical progression from the federal reserves Dovish stance. Well,
19:04
Speaker 1: there are a lot of factors that play into this,
19:06
Speaker 1: of course, but I think one of the key ones
19:07
Speaker 1: that a lot of people don't think about is the
19:09
Speaker 1: fact that we are a global economy, and if you
19:10
Speaker 1: look at what's going on with bond yields in Europe,
19:12
Speaker 1: I mean how do you have the interest rates in
19:14
Speaker 1: the US be significantly higher than another stable country like
19:18
Speaker 1: say Germany for example, which are basically zero. So there's
19:21
Speaker 1: only so far that those two can separate. And as
19:23
Speaker 1: long as yields stay low in Europe and obviously with
19:26
Speaker 1: the Brexit issue out there floating, uh, there's concerns about
19:29
Speaker 1: a potential recession in the UK which easily could spill
19:32
Speaker 1: over into the entire European Union. So those rates just
19:35
Speaker 1: simply aren't going to go up that much, and that's
19:37
Speaker 1: going to keep a tether, if you will, on US
19:39
Speaker 1: rates to some extent you mentioned Randy, you mentioned Brexit
19:42
Speaker 1: and European growth and so on. How much the geopolitical issues,
19:46
Speaker 1: whether it's you know, China trade negotiations which are ongoing
19:49
Speaker 1: today with some more news today Brexit, the uncertainly created
19:52
Speaker 1: by Brexit, how much is that way in or factor
19:54
Speaker 1: into your analysis about kind of what you're telling your
19:57
Speaker 1: clients to do efforts. So for retail investor, I don't
20:00
Speaker 1: think they're that informed or really that clear on exactly
20:03
Speaker 1: the whole Brexit issue and how it all plays out
20:05
Speaker 1: or what it might mean. I think the China issue
20:07
Speaker 1: is one they hear about all the time, and it's
20:09
Speaker 1: mostly because everybody in this country that buys things, they
20:12
Speaker 1: can turn it over and they can see made in China,
20:14
Speaker 1: so they know what that means. They know manufacturing jobs
20:16
Speaker 1: have left for the last several decades they've gone to China.
20:19
Speaker 1: They know that their tariffs and that things are potentially
20:21
Speaker 1: more expensive now and it could potentially get more expensive.
20:24
Speaker 1: I've been saying for several months since this whole thing
20:26
Speaker 1: started seven eight, nine months ago, that the biggest sort
20:29
Speaker 1: of overhang, if you will, the dark cloud over these markets,
20:32
Speaker 1: has been the China issue, and that the markets would
20:34
Speaker 1: likely rally sharply if we got some sort of resolution.
20:38
Speaker 1: We hear hints every day and tweets and everything else
20:41
Speaker 1: that we are making progress. Trump has seemed very willing
20:44
Speaker 1: um just recently to say that hey, I might extend
20:47
Speaker 1: that deadline March first out further as long as we're
20:49
Speaker 1: making progress, and even maybe the grand deal at the
20:53
Speaker 1: end isn't as great as everyone thinks ultimately if it,
20:55
Speaker 1: if it gets off the table, I do think the
20:56
Speaker 1: markets can continue to rally. Now. That said, we've had
20:59
Speaker 1: a pretty stantial rebound in Q one of this year,
21:02
Speaker 1: so I think some of the optimism about a potential
21:04
Speaker 1: resolution is already built into the market, so the upside
21:07
Speaker 1: is probably not as great. But when you look at
21:09
Speaker 1: how close we are now to where we were at
21:11
Speaker 1: the all time highs in September of last year, I
21:13
Speaker 1: frankly think the market still has at least that much
21:16
Speaker 1: space to rally. If this issue gets resolved sometime over
21:18
Speaker 1: the next couple of months, that's a pretty big call.
21:21
Speaker 1: Let's take all of these macro concerns, bought them up,
21:23
Speaker 1: and talk about making money. I'm looking at the SMP
21:25
Speaker 1: five hundred up nearly eleven so far this year. Are
21:28
Speaker 1: you saying that it could go up to hey or
21:31
Speaker 1: more in total return for twenty nineteen if there is
21:34
Speaker 1: some resolution to trade. My original thought earlier late last
21:38
Speaker 1: year was that we could see high single digit returns
21:41
Speaker 1: this year, but since we had a substantial correction nearly
21:44
Speaker 1: a bear market in Q four of last year, we
21:46
Speaker 1: started out at a much lower level. So to see
21:49
Speaker 1: double digit returns this year, frankly, like you just said,
21:51
Speaker 1: we're already there. Uh, could we get back to all
21:53
Speaker 1: time highs? My expectation is we could sometime maybe by
21:57
Speaker 1: Q three, Q four of this year. I think that's
21:59
Speaker 1: very possible. So possible see year today return for the spire.
22:05
Speaker 1: Which of the three major U S industries do you
22:08
Speaker 1: expect to outperform well. Obviously, technologies and as a big
22:12
Speaker 1: part of the NASDAC, and we've seen a pretty big
22:14
Speaker 1: rebound in the NASDAC because of technology and technology course
22:18
Speaker 1: is an issue. Especially big tech is an industry that
22:21
Speaker 1: has a lot of business with China, and then it
22:23
Speaker 1: goes both ways. A lot of big tech companies in
22:25
Speaker 1: the US have invested in Chinese tech companies. A lot
22:28
Speaker 1: of big tech companies in the US get investment from
22:30
Speaker 1: China and also supplies and parts and labor from from China,
22:34
Speaker 1: so it flows both ways. As those issues get as
22:37
Speaker 1: we work towards a resolution with China, tech companies are
22:40
Speaker 1: going to benefit. That obviously will help the will help
22:43
Speaker 1: the NASTACK to some extent. Industrials are another area that's
22:46
Speaker 1: obviously part of the DAW big piece of that. Uh.
22:49
Speaker 1: They are many of the big giant industrial companies do
22:52
Speaker 1: a lot of foreign business, so they also will benefit.
22:56
Speaker 1: And in fact that's what you've seen. If you look
22:57
Speaker 1: at some of the outperforming sectors we saw in Q four,
23:00
Speaker 1: it was the defensive areas. It was utilities, it was
23:02
Speaker 1: real estate, it was healthcare, it was places where people
23:05
Speaker 1: go to hide consumer stables. This year, so far, it's
23:08
Speaker 1: been the exact opposite. The bottom performers of Q four
23:11
Speaker 1: are on the top now and vice versa. All right,
23:13
Speaker 1: thank you so much for being with us. Randy Frederick
23:15
Speaker 1: ten seconds. Where should we go to have barbecue in Austin. Well,
23:18
Speaker 1: everyone hears a lot about Franklin and Salt Lick, but
23:21
Speaker 1: my personal favorite is a very easy one to get
23:22
Speaker 1: to and you don't have to stand in line for
23:24
Speaker 1: three hours. It's Rudy's. Rudy's for the barbecue that you love.
23:28
Speaker 1: Randy Frederick, vice president of Trading in Derivatives at Schwab,
23:31
Speaker 1: joining us here in our Bloomberg Interactive Broker Studios. Interesting
23:47
Speaker 1: news out this morning, Apple and Goldman Sachs UH will
23:50
Speaker 1: begin testing a jointly developed credit card with their employees
23:53
Speaker 1: in the next few weeks. UH the car. The card
23:55
Speaker 1: will be paired with new iPhone software features that will
23:58
Speaker 1: help users manage their finny ANSWS to help us kind
24:01
Speaker 1: of dig through this story and all things kind of
24:03
Speaker 1: e payments is David Ritter, Payments especially finance analyst at
24:06
Speaker 1: Bloomberg Intelligence. He's based in Princeton, New Jersey, but luckily
24:09
Speaker 1: for us, he joins us in our Bloomberg Interactive Broker
24:11
Speaker 1: studio here in New York today. So Dave, thanks for
24:13
Speaker 1: being here. So what are Goldman and Apple trying to
24:16
Speaker 1: do here? What's behind this this new card? Well, look,
24:19
Speaker 1: I think they're trying to reach a millennial customer. What's
24:22
Speaker 1: interesting about it is this is Goldman's very first credit card.
24:26
Speaker 1: And what's also interesting is it looks like they're going
24:28
Speaker 1: to try to do it themselves. So they're coming into
24:31
Speaker 1: a business that is dominated by four or five companies,
24:34
Speaker 1: you know, City, Jase, ba A, MX, that's it. They
24:37
Speaker 1: control the whole business and here comes here comes Goldman.
24:41
Speaker 1: So um, they must offer really sweet terms to Apple.
24:45
Speaker 1: But on the other hand, Goldman has been really active
24:47
Speaker 1: as a fintech investor. Uh. They bought a company about
24:51
Speaker 1: a year ago called Clarity Money, which helps folks manage
24:55
Speaker 1: their money, and so it kind of fits with it.
24:57
Speaker 1: Sounds like what they're trying to integrate into the new
25:00
Speaker 1: Why um, the new iPhone features. So here's what I'm
25:03
Speaker 1: struck by Lisa Ellis of Moffatt. Nathanson said that it
25:07
Speaker 1: is surprising that Apple chose Goldman Sacks and not Synchrony Financial,
25:11
Speaker 1: which is more accustomed to arrangements like this. Do we
25:14
Speaker 1: have any sense of what kinds of sweeteners Goldman Sacks
25:17
Speaker 1: offered to Apple to sort of solidify this agreement. Well,
25:20
Speaker 1: you know, at the end of the day, I think
25:22
Speaker 1: if they're trying to make their entry into the credit
25:24
Speaker 1: card business, this is the way to do with a
25:26
Speaker 1: real high profile name. But how do you compete? I mean,
25:29
Speaker 1: they can compete with the big guys on funding costs, right,
25:32
Speaker 1: they have a huge deposit base that they're growing rapidly,
25:35
Speaker 1: but how do they do it on expenses? They're gonna
25:39
Speaker 1: have to invest up to two million dollars even to
25:41
Speaker 1: get off the ground. So um, you know, I think
25:45
Speaker 1: that they've decided this as a loss leader and it's
25:47
Speaker 1: a big name, and we'll see where it takes us
25:49
Speaker 1: into different directions. So, Davin, know, you spent a lot
25:52
Speaker 1: of time on the growing ePayments business. How are consumers
25:55
Speaker 1: generally thinking about the privacy issues here? Every time you
26:00
Speaker 1: enter credit card number somewhere or you know, that's an issue,
26:04
Speaker 1: but it doesn't seem to be slowing the e payments
26:06
Speaker 1: business at all. Well, you know, the company that really
26:08
Speaker 1: stands out among all others is PayPal, and it's interesting
26:12
Speaker 1: because they have a long track record. You know, it
26:14
Speaker 1: sounds crazy to say a company that's only you know,
26:16
Speaker 1: fifteen years old has a long track record, But there
26:18
Speaker 1: is a trust factor there that you see. The newer
26:22
Speaker 1: ones that have come along like Apple Pay and Samsung
26:24
Speaker 1: Pay and all these pays that haven't caught on just
26:27
Speaker 1: don't have that trust. So people will use it. They'll
26:30
Speaker 1: use it online, they'll use it on their phone. They
26:32
Speaker 1: just have that trustell on that. So I'm just trying
26:35
Speaker 1: to figure out why would people choose this credit card
26:39
Speaker 1: over any others. It's a good question because typically the hook,
26:43
Speaker 1: even for the millennials, the rewards you get. Right. So
26:46
Speaker 1: Chase's Sapphire Car was a huge hit with millennials when
26:49
Speaker 1: it launched a few years ago, but it turns out
26:52
Speaker 1: that big upfront bonus wasn't sustainable six months in they
26:55
Speaker 1: canned it, right, And so this is supposedly going to
26:58
Speaker 1: pay a two percent cash a reward too. What's different
27:01
Speaker 1: about that? You can get that anywhere. You can use
27:05
Speaker 1: your Mint app or your any number of apps to
27:08
Speaker 1: manage your finances. Is it neat that it's integrated with
27:11
Speaker 1: the iPhone? I guess for real iPhone fans they like that,
27:15
Speaker 1: But it's just as easy to open up something separate.
27:17
Speaker 1: Can you imagine if all of a sudden there's a
27:19
Speaker 1: little voice that's actually recording of your mother saying do
27:22
Speaker 1: you really need? Do you really need? Do you really
27:24
Speaker 1: want to buy that? Yeah? Crazy, that's what they're That's
27:27
Speaker 1: what it sounds like they're going for. So, Dave, are
27:29
Speaker 1: we going to a cash list society? I mean, there's
27:31
Speaker 1: a little restaurant fast food place down the street from
27:34
Speaker 1: the Bloomberg headquarters here that just opened. They don't take cash, so,
27:37
Speaker 1: and I know a lot of young folks literally do
27:41
Speaker 1: not carry cash. I don't use cash myself anymore, but
27:44
Speaker 1: that's just because I'm a payment's dork. And you know,
27:48
Speaker 1: I use my my City double cash card so I
27:52
Speaker 1: get two percent on everything, So I use that anywhere
27:55
Speaker 1: I can go, But I don't use the fancy payment apps.
27:57
Speaker 1: Occasionally I'll use an Apple pay, but that what I use.
28:00
Speaker 1: But that's kind of where things are. But well, there's
28:05
Speaker 1: a pushback though on that. So a lot of interest
28:08
Speaker 1: groups have said, hey, you're excluding tens of millions of
28:13
Speaker 1: US folks that are on bank that have no bank
28:15
Speaker 1: account because you know, half of folks in the US
28:17
Speaker 1: have less than four dollars to their name. Sad but true. Um,
28:22
Speaker 1: they have to use cash. So I don't think cashless
28:25
Speaker 1: society is coming anytime soon. And my dad told me
28:28
Speaker 1: stories like that, Dave. When I started with IBM in
28:31
Speaker 1: nifty we're having meetings talking about cash was going away
28:34
Speaker 1: in ten years. Here we are. Yeah, Well, thank you
28:38
Speaker 1: so much for being with us. David Ridder, Payments and
28:40
Speaker 1: Specialty Finance analyst for Bloomberg Intelligence. A fascinating story. Interesting
28:45
Speaker 1: to know what exactly Goldman Sachs promised Apple to get
28:47
Speaker 1: this marquee name and how they plan to sustain this
28:50
Speaker 1: over the long run without some kind of key incentive
28:53
Speaker 1: to bring in new customers. Thanks for listening to the
28:55
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
28:58
Speaker 1: to interviews at Apple Podcast or whatever podcast platform you prefer.
29:01
Speaker 1: I'm Paul Sweeney, I'm on Twitter at pt Sweeney. I'm
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Speaker 1: Lisa Abram Woits. I'm on Twitter at Lisa Abram Woits
29:07
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29:10
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