Latest / Bloomberg Intelligence / Forty Percent of Bars In U.S. May Not Make It: Ritholtz

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Forty Percent of Bars In U.S. May Not Make It: Ritholtz · 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 wits. Each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money, whether at the grocery store or
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  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or whatever you listen to podcast as well as
• 0:18
  Speaker 1: that Bloomberg dot com to as the economies begin to
• 0:21
  Speaker 1: reopen is going out to restaurants and bars and actually
• 0:25
  Speaker 1: interacting with people. Barry Ridholt, founder Redholt's Wealth Management. He's
• 0:29
  Speaker 1: a Bloomberg Opinion Colmless and host of Masters in Business.
• 0:32
  Speaker 1: He's got a column at least that discusses the grim
• 0:35
  Speaker 1: American bar scene and why many of them may not
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  Speaker 1: even survive this pandemic. Barry, thanks so much for joining
• 0:41
  Speaker 1: us here. Kind of what did you learn as you
• 0:45
  Speaker 1: chatted with the host of Bar Rescue? So a couple
• 0:49
  Speaker 1: of things. First, um, you know it is grim, and
• 0:54
  Speaker 1: and what first got me focused on exactly how grim
• 0:58
  Speaker 1: it was? Was before I spoke to John Taffer, I
• 1:02
  Speaker 1: spoke to Pat la Frida of lafreda meat purveyor. You
• 1:06
  Speaker 1: might know that name. Because they created the original shake
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  Speaker 1: Shack burger, and there a supplier to restaurants like Peter
• 1:12
  Speaker 1: Luger's and all the high end stake places, and Lafrida
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  Speaker 1: told us that half of the restaurants he supplies to
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  Speaker 1: are not doing takeout or a curbside service, and of
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  Speaker 1: those who are, they're running between twenty five and thirty
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  Speaker 1: of their normal volumes. So already we see the restaurant
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  Speaker 1: industry is is going to be in trouble because they're
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  Speaker 1: just not seeing the sort of revenues they were previously.
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  Speaker 1: Um Taffer takes it a step further and he says,
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  Speaker 1: it is so expensive to reopen after you're closed for
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  Speaker 1: three months. Think about it, Everything in the refrigerator has
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  Speaker 1: been thrown out, you have no inventory. You have to
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  Speaker 1: get some line of credit just to stock up the refrigerator.
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  Speaker 1: And that's what led to say the bars and restaurants
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  Speaker 1: are very likely to not make it through this whole crisis.
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  Speaker 1: And he's not alone in those kinds of estimates. There
• 2:10
  Speaker 1: are a lot of estimates coming out. This has been
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  Speaker 1: at one of, if not the most hard hit sector,
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  Speaker 1: and it's hard to see how it's going to emerge.
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  Speaker 1: That quickly. I'm wondering what the restaurant of the future
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  Speaker 1: looks like. Is this going to permanently change the concept
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  Speaker 1: of dining out to a more takeout model, kits that
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  Speaker 1: you can cook at home. That type of transition just
• 2:33
  Speaker 1: to be more resilient through all types of waves of
• 2:36
  Speaker 1: the economy. You know, I kind of divide the world
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  Speaker 1: into the pre and post vaccine eras and and once
• 2:44
  Speaker 1: we have a treatment and the vaccine so people are comfortable. Look,
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  Speaker 1: there's a reason why restaurants where and bars were as
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  Speaker 1: popular as they were pre crisis. Humans are social animals.
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  Speaker 1: We like to go out, we like to break bread together,
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  Speaker 1: drink together, social lies. I just can't imagine a future
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  Speaker 1: where bars and restaurants have a six foot social distancing
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  Speaker 1: and you're not sitting um in a loud, crowded, busy room,
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  Speaker 1: but with a piece of plexiglass between you and anybody else,
• 3:14
  Speaker 1: which I asked somebody else out on a date with
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  Speaker 1: plexic glass in between your kind of unlikely. But but
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  Speaker 1: that said, you know, a little context also helps. Restaurants
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  Speaker 1: and bars are a notoriously challenging business. In the first place,
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  Speaker 1: they have razor thin margins, a lot of built in costs.
• 3:34
  Speaker 1: The restaurants that I expect are going to hang around
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  Speaker 1: very often, at least outside of the city, are the
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  Speaker 1: ones that physically own their space, so rent isn't an issue.
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  Speaker 1: They're probably not even if they've been around long enough,
• 3:48
  Speaker 1: they're probably not even paying a mortgage. They just have
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  Speaker 1: their property tax. That's a very different scenario than someone
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  Speaker 1: at a busy intersection corner in Manhattan paying big giant
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  Speaker 1: rent to some big um skyscraper owned by one of
• 4:06
  Speaker 1: the big reeds. That's a very different situation. And you
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  Speaker 1: don't know how those you know how on arts can
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  Speaker 1: those companies come out of three, four or five months
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  Speaker 1: of a fraction of their revenue but of their course
• 4:19
  Speaker 1: apparent want to shift gears a little bit. I know
• 4:20
  Speaker 1: you recently interviewed one of my favorite authors, Michael Lewis,
• 4:23
  Speaker 1: author of Liars Poker, which was just such a fun
• 4:26
  Speaker 1: book back in the day. Uh you know, I guess
• 4:29
  Speaker 1: the conclusion was an article the U s under Trump
• 4:33
  Speaker 1: is like a team without a coach, was one of
• 4:36
  Speaker 1: your recent columns. What Michael Lewis mean about that? So
• 4:40
  Speaker 1: two really interesting projects he is working on, both kind
• 4:44
  Speaker 1: of connected in the same place. The first is the
• 4:48
  Speaker 1: book he wrote right after the election called The Fifth Risk,
• 4:52
  Speaker 1: and it focuses on Governor Chris Christie, who was head
• 4:57
  Speaker 1: of the Trump transition team. It's actually law that once
• 5:01
  Speaker 1: you become a major party nominee, you have to put
• 5:04
  Speaker 1: together lists of all these people um who are going
• 5:07
  Speaker 1: to be able to slot into important um positions within
• 5:11
  Speaker 1: the government. You don't want to allow that transition period
• 5:16
  Speaker 1: to put the country at risk, either in terms of
• 5:18
  Speaker 1: national security, of defense, or anything like that. And you
• 5:21
  Speaker 1: also want to facilitate everybody hitting the ground running pretty quickly.
• 5:25
  Speaker 1: That executive transition of power should be smooth and flawless.
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  Speaker 1: And to everybody's shock, the day after he won the election,
• 5:33
  Speaker 1: Trump fired the entire transition team and basically threw away
• 5:38
  Speaker 1: four months of work. And and in the book The
• 5:41
  Speaker 1: Fifth Risk, Lewis talks about, you know, the problem with
• 5:47
  Speaker 1: not having experts in in their various roles at places
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  Speaker 1: like the National Institute of Health or the Center for
• 5:54
  Speaker 1: Disease Control is that if something happens, well, we're not
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  Speaker 1: prepared for it. And turned out that the book was
• 6:01
  Speaker 1: very prescient given what's been going on with COVID uh nineteen.
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  Speaker 1: Now hold that aside, because that was last year. Uh
• 6:10
  Speaker 1: In he started a podcast, Hold Against the Rules, and
• 6:15
  Speaker 1: he looks at different aspects of sports and life. And
• 6:19
  Speaker 1: where Barry, We're gonna have to leave it there. We'll
• 6:22
  Speaker 1: have you back on to talk more about that. That's
• 6:24
  Speaker 1: Barry rid Holts, Bloomberg opinion columnist and host of Masters
• 6:27
  Speaker 1: in Business on Bloomberg. Grady also founder and chair of
• 6:31
  Speaker 1: the rid Holtz Wealth Management Group. Well over the past
• 6:36
  Speaker 1: several days, President Donald Clumps been raging against Twitter, since
• 6:40
  Speaker 1: the social media platform that helped fault him to the
• 6:42
  Speaker 1: presidency slap the fact checked links on a pair of
• 6:46
  Speaker 1: his tweets. To get a sense of what this really
• 6:48
  Speaker 1: means for Twitter and free speech, we welcome cast Sunstein.
• 6:52
  Speaker 1: Cast is a Bloomberg opinion calumnist, a Harvard law professor,
• 6:56
  Speaker 1: and the author of a new book entitled Too Much
• 6:58
  Speaker 1: Information To will be out this July from m I
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  Speaker 1: T Press. Professor. Thanks so much for joining us here,
• 7:05
  Speaker 1: give us your thoughts here. What's really happening here between
• 7:09
  Speaker 1: Twitter and President Trump? What's really at the at the
• 7:12
  Speaker 1: foundation of what's going on here? The foundation is had
• 7:16
  Speaker 1: nothing to do with President Trump. The foundation is that
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  Speaker 1: Twitter adopted a policy after I'm sure a lot of
• 7:22
  Speaker 1: internal discussions that isn't about Vice President Biden or President
• 7:27
  Speaker 1: Trump or about a famous scientist. It just says that
• 7:30
  Speaker 1: if they are misleading claims on its platform, it's going
• 7:34
  Speaker 1: to respond generally in a very gentle way by having
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  Speaker 1: a label that said get the facts here with the link.
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  Speaker 1: So if you post on Twitter saying, you know, the
• 7:44
  Speaker 1: more cigarettes, the less cancer, everyone should smoke to ensure
• 7:48
  Speaker 1: that they live forever, Twitter's policy would say get the
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  Speaker 1: facts here. And that's uh been applied now to the president,
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  Speaker 1: and it's just an application of a policy adopted well,
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  Speaker 1: Professor Substine, I'm wondering, though, consistency has been an issue
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  Speaker 1: for Twitter in terms of other tweets that President Trump
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  Speaker 1: and others have put out there that perhaps they haven't
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  Speaker 1: fact checked as much, and some people saying why now,
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  Speaker 1: why this one? Can you give us a sense of
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  Speaker 1: the legal standard in following some sort of understandable protocol
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  Speaker 1: in when they interfere and when they don't, and how
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  Speaker 1: that might come to hurt Twitter actually going forward? Okay, Well,
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  Speaker 1: the fundamental background fact is that Twitter isn't governed by
• 8:34
  Speaker 1: the U. S. Constitution. So if Twitter said we're only
• 8:37
  Speaker 1: going to have Republicans on our platform, are only Democrats?
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  Speaker 1: Are only things that take a certain stand on immigration?
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  Speaker 1: That would raise no constitutional question. Uh it appears that
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  Speaker 1: there aren't statutory restrictions either, though that's not a clear meaning.
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  Speaker 1: Twitter has a lot of room as the lot ask
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  Speaker 1: stands to run its platform as it's he's fit. So
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  Speaker 1: the legal question isn't um very lively right now. It
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  Speaker 1: might become lively or eventually, but basically that's not the
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  Speaker 1: main concern. Twitter Is policy of putting on labels and
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  Speaker 1: warnings is relatively new. Most of President Trump's tweets don't
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  Speaker 1: have factual errors. President Trump's critics complain of those that do,
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  Speaker 1: but the majority don't. And that's true of anyone who's
• 9:29
  Speaker 1: regularly on Twitter. I hope that's probably an overstatement on
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  Speaker 1: Twitter don't mostly have factual errors. Uh So, given the
• 9:39
  Speaker 1: volume of factual errors on Twitter, just like given the
• 9:42
  Speaker 1: volume of people who are shoplifters, the enforcement authorities aren't
• 9:47
  Speaker 1: going to be able to respond a hundred percent of
• 9:49
  Speaker 1: the time. Here the the the correction, what's called the
• 9:56
  Speaker 1: label that's more precise involved a claim of out of
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  Speaker 1: voter fraud being rampant, where you have mail in balance,
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  Speaker 1: and evidently that's that's misleading. Twitter didn't even say, by
• 10:09
  Speaker 1: the way, it was misleading. If that is potentially misleading,
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  Speaker 1: and to Twitter didn't say it was false, that would
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  Speaker 1: have been fair to say that it's potentially misleading. Therefore
• 10:17
  Speaker 1: we'll put our response in and that's that's completely fair
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  Speaker 1: to do. Professor. There's also another legal question here, and
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  Speaker 1: that is freedom of speech, and it's one that's been
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  Speaker 1: invoked by President Trump and it's also been invoked by
• 10:30
  Speaker 1: others who say freedom of press is part of the
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  Speaker 1: issue too with respect to Twitter. What freedom should we
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  Speaker 1: be thinking of when we frame this issue legally? Well,
• 10:42
  Speaker 1: if um, let's say the Law Street Journal decided to
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  Speaker 1: have an editorial policy of a certain kind, the First
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  Speaker 1: Amendment doesn't play in at all. If Facebook decides that
• 10:55
  Speaker 1: it's news feed is going to go in a certain direction,
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  Speaker 1: there's no constitutional issue, and there's probably no legal issue
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  Speaker 1: that is that the Constitution is really important to see
• 11:06
  Speaker 1: applies only to government, and that's part of freedom. By
• 11:09
  Speaker 1: the way, if you want to say or do certain
• 11:12
  Speaker 1: things the Constitution doesn't apply to you. The one exception,
• 11:16
  Speaker 1: which is an interesting one, is if you enslave someone,
• 11:19
  Speaker 1: then the Constitution kicks in. As a cultural matter, Twitter,
• 11:23
  Speaker 1: though it's relatively new, it's business model and its success
• 11:27
  Speaker 1: really and it's legitimacy depend on being a kind of
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  Speaker 1: free for all, and that that's not a legal of idea,
• 11:36
  Speaker 1: it's just a business idea. Like you know, uh, Reddit
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  Speaker 1: or YouTube. They have a lot of stuff on them
• 11:45
  Speaker 1: and that's probably very good it certainly in the case
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  Speaker 1: of YouTube and Twitter, it's part of what makes them,
• 11:51
  Speaker 1: as you know, positive, as they often not always as
• 11:55
  Speaker 1: positive as they often are, and that means that Twitter should,
• 11:58
  Speaker 1: if it's to provide the public services providing tread very
• 12:02
  Speaker 1: lightly on freedom of speech. And what we had was
• 12:05
  Speaker 1: so light. It's kind of astounding to see the flare
• 12:08
  Speaker 1: up on the part of the White House. Facebook. Twitter
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  Speaker 1: didn't even say it was false, It just said get
• 12:14
  Speaker 1: the facts on and seeing it, you could think the
• 12:17
  Speaker 1: facts are going to be exactly what the president said.
• 12:21
  Speaker 1: So President, it's interesting, you know, professor, when we think
• 12:25
  Speaker 1: about President Trump, one of the questions is simply, as
• 12:28
  Speaker 1: it relates to some of these social media platforms Facebook
• 12:30
  Speaker 1: and Twitter. Are they are these facebooks and twitters of
• 12:35
  Speaker 1: the world. Are they media companies? Are they merely platforms
• 12:38
  Speaker 1: for people to put their own thoughts on. They are platforms,
• 12:44
  Speaker 1: that's technically what they are. I do think President Trump
• 12:48
  Speaker 1: is correct in exploring exactly what they're doing and what
• 12:53
  Speaker 1: kind of legal authorizations they should have to do what
• 12:57
  Speaker 1: they're doing. So if a new space paper has certain
• 13:01
  Speaker 1: kinds of material, let's say liabele or child abuse, UH,
• 13:06
  Speaker 1: they can be subject potentially to a lawsuit. There's a
• 13:09
  Speaker 1: law called section two thirty UH that exempts the social
• 13:14
  Speaker 1: media providers from liability for things for which newspapers and
• 13:18
  Speaker 1: magazines and television stations would be liable at least to
• 13:23
  Speaker 1: ponder the reach of two third section back in, I
• 13:28
  Speaker 1: think that is that is fair. So ultimately, what's your
• 13:33
  Speaker 1: opinion on what of Twitter's kind of solution here if
• 13:36
  Speaker 1: you will to President Trump and others, Well, I think
• 13:40
  Speaker 1: Twitter's general approach here is extremely reasonable and very soft,
• 13:46
  Speaker 1: which is to say that you know, they're going to
• 13:48
  Speaker 1: say get the facts if they detect something that's just
• 13:51
  Speaker 1: leaving and and the place they point people to should
• 13:55
  Speaker 1: be you know, fair enough and it looks like it's
• 13:58
  Speaker 1: fair enough here. Um, it's completely fair to say, why
• 14:01
  Speaker 1: did you go after me and not someone else? And
• 14:04
  Speaker 1: it's completely fair to say I was right on this one.
• 14:06
  Speaker 1: I wasn't this leading. But that's that's part of public discussion.
• 14:10
  Speaker 1: It's not partner shouldn't be part of threats. Professor Cass
• 14:14
  Speaker 1: Sunstein a pleasure having you on. Thank you so much
• 14:16
  Speaker 1: for being with us. Professor Sunstein is of Harvard Law School,
• 14:20
  Speaker 1: also a Bloomberg opinion columnist and author of the new
• 14:23
  Speaker 1: book Too Much Information, which will be out This to
• 14:26
  Speaker 1: lie from m I T Press. You're listening to Bloomberg
• 14:33
  Speaker 1: Markets with Lisa Abrama, Eds and Paul Sweeney on Bloomberg Radio.
• 14:37
  Speaker 1: We got some data, as Greg was mentioning today, showing
• 14:40
  Speaker 1: a devastating picture for unemployment. Some green shoots there if
• 14:44
  Speaker 1: you want to take it for the optimistic side of things,
• 14:47
  Speaker 1: but still highlighting an unemployment rate that's likely to climb
• 14:50
  Speaker 1: to twenty in May. The question why are equities rallying?
• 14:55
  Speaker 1: Joining us now? Phill Orlando, chief equity market strategist and
• 14:58
  Speaker 1: head of client portfolio Management at Federated Hermes with billion
• 15:02
  Speaker 1: dollars in equity investments under management, Phil, what's your take here,
• 15:07
  Speaker 1: especially given the fact that we've seen this ongoing rotation,
• 15:11
  Speaker 1: perhaps not today but leading up to today going into
• 15:14
  Speaker 1: the cyclical stocks. How much traction does this rally have?
• 15:18
  Speaker 1: So you're you're leading on the claims data is really
• 15:22
  Speaker 1: a beacon of light on this whole issue. The pessimists,
• 15:26
  Speaker 1: the glass half full person would say, well, we've got
• 15:30
  Speaker 1: almost forty one million initial claims that have been filed
• 15:33
  Speaker 1: over the last couple of months. That's absolutely horrific. And
• 15:37
  Speaker 1: then the optimists, someone like me, says, yeah, but the
• 15:40
  Speaker 1: claims have fallen from six point nine million in March
• 15:45
  Speaker 1: to two point one million, which was this morning's number.
• 15:48
  Speaker 1: They fallen by two thirds and and on a week
• 15:52
  Speaker 1: over week basis. So the trajectory, i think, is what
• 15:56
  Speaker 1: the equity market is looking at. So so separate apart
• 15:59
  Speaker 1: from claims, you know, you mentioned green shoots at the
• 16:03
  Speaker 1: very beginning, Oil prices you know, have gone from ten
• 16:06
  Speaker 1: dollars to thirty five dollars. Confidence Michigan Conference Board, the
• 16:11
  Speaker 1: Small Business Optimists and Index better than expected. Several of
• 16:15
  Speaker 1: the Fed indicries Empire, Philly, Fed, Dallas, Richmond, better than expected. That.
• 16:20
  Speaker 1: What I'm saying is the equity market is a forward
• 16:23
  Speaker 1: looking discounting mechanism, is not looking at the horrific absolute
• 16:28
  Speaker 1: nature of what the data is presenting today. They're saying, Okay,
• 16:33
  Speaker 1: the the the infections, the mortalities peaked from a trajectory
• 16:38
  Speaker 1: standpoint in early April. They're getting better. We're starting to
• 16:42
  Speaker 1: slowly reopen the economy. So as we look out into
• 16:46
  Speaker 1: the second half of this year, into the end of
• 16:48
  Speaker 1: this year, that the economy is open, we're out of
• 16:51
  Speaker 1: the recession, we're starting to grow again, and that's what
• 16:54
  Speaker 1: the market, in my view, is attempting to price in here. So, Phil,
• 16:58
  Speaker 1: a lot of the medical experts have warned that we
• 17:02
  Speaker 1: should be expecting a second wave of infections, perhaps in
• 17:07
  Speaker 1: the fall in wintertime. How do you think the markets
• 17:10
  Speaker 1: general will deal with that if that it does in
• 17:12
  Speaker 1: fact occur well, And and that's why the progress that
• 17:17
  Speaker 1: we've made from the health care community here over the
• 17:20
  Speaker 1: last couple of months is so critically important. So you've
• 17:23
  Speaker 1: got one drug company, gile Lead, which has had their
• 17:26
  Speaker 1: anti viral drug grandes Viere approved by the FDA. You've
• 17:31
  Speaker 1: got a hundred different companies working on vaccines. You've got
• 17:35
  Speaker 1: eight of them that are actually making some solid progress,
• 17:39
  Speaker 1: and you've got three of them that appear to be
• 17:42
  Speaker 1: a step ahead of everyone else, sort of in phase
• 17:44
  Speaker 1: one to phase two clinicals right now, Moderna, Oxford University
• 17:48
  Speaker 1: and and Novo Vax. That the idea here is that
• 17:52
  Speaker 1: given the pace that that a handful of companies are
• 17:55
  Speaker 1: making and the pressure I think that the f D
• 17:58
  Speaker 1: a self imposed fields to try to get something out there,
• 18:02
  Speaker 1: we could have a vaccine by by the end of
• 18:05
  Speaker 1: this year. And and so if you've got an anti
• 18:07
  Speaker 1: viral drug and and and one or more vaccines um
• 18:12
  Speaker 1: that potentially is gonna blunt this dreaded second wave that
• 18:17
  Speaker 1: we're trying to avoid. Now. The risk is that these
• 18:20
  Speaker 1: anti virals crap out, that we don't get a medical response,
• 18:24
  Speaker 1: and that we do get the second wave that's going
• 18:26
  Speaker 1: to have a deletarious impact on the reopening of the comedy,
• 18:30
  Speaker 1: economic growth, and I would suggest stock market performance as well.
• 18:34
  Speaker 1: What the markets pricing and now I think is the
• 18:37
  Speaker 1: fact that we are making medical progress on this drug development,
• 18:41
  Speaker 1: and the thinking is something is gonna is gonna shake
• 18:44
  Speaker 1: free by Thanksgiving, all right, so what how are you positioning.
• 18:48
  Speaker 1: We have maintained a three percent equity overweight with a
• 18:53
  Speaker 1: focus on domestic large cap growth and domestic small cap.
• 18:59
  Speaker 1: The those areas have done pretty well here, led by
• 19:03
  Speaker 1: healthcare and technology. One area that we've liked that hasn't
• 19:07
  Speaker 1: participated up until now has been financials. But just in
• 19:12
  Speaker 1: the last week or so, we're starting to get sort
• 19:14
  Speaker 1: of a catch up trade that you folks have been
• 19:17
  Speaker 1: talking about, you know, some of the more economically sensitive
• 19:20
  Speaker 1: categories like financials, industrials, consumer discretionary energy, et cetera. Uh So,
• 19:26
  Speaker 1: we've been sticking with the with the growth of equality,
• 19:30
  Speaker 1: but we're watching this catchup trade pretty closely. What would
• 19:34
  Speaker 1: it take for you to change that view? Especially given
• 19:36
  Speaker 1: the fact that the vaccine scenario that people are expecting
• 19:40
  Speaker 1: and that Anthony Fauci sort of raised the specter of
• 19:43
  Speaker 1: yesterday that it could be approved, something could be approved
• 19:45
  Speaker 1: by the end of this year, has been called into
• 19:48
  Speaker 1: the question by the likes of the MERK CEO, who
• 19:50
  Speaker 1: came out and said this seems really ambitious to us. Well,
• 19:55
  Speaker 1: and I think that's exactly the point. If if we
• 19:57
  Speaker 1: do not make the medical progress that we think we're
• 20:01
  Speaker 1: going to make on the vaccine front, and as a
• 20:03
  Speaker 1: result end up with this disastrous second wave which forces
• 20:08
  Speaker 1: us to shut the economy down again and extend the
• 20:11
  Speaker 1: recession which we think is contained of the first half
• 20:14
  Speaker 1: through the back half of the year. That that's not
• 20:17
  Speaker 1: in our expectations. We think the because of the reopening
• 20:20
  Speaker 1: that's going on, we're going to have positive third quarter
• 20:23
  Speaker 1: growth over second quarter, positive corporate earnings in the third
• 20:27
  Speaker 1: quarter versus the second quarter. That's our base case. So
• 20:31
  Speaker 1: if if, if those things don't happen, if the economy
• 20:33
  Speaker 1: gets shut down because of this second wave because we
• 20:36
  Speaker 1: don't make the progress on the drug development that we
• 20:39
  Speaker 1: think we're making, then that's going to cause us to
• 20:41
  Speaker 1: go back to the drawing board. So just real quickly,
• 20:44
  Speaker 1: what do you make a China here that looks like
• 20:45
  Speaker 1: the tensions really are kind of starting to ramp up here. Well,
• 20:49
  Speaker 1: you know, I'm not a China expert, but my best
• 20:52
  Speaker 1: guess is that, uh, perhaps President She is trying to
• 20:56
  Speaker 1: direct global focus on the role that the Chinese had
• 21:02
  Speaker 1: with the coronavirus. It now appears that they knew about
• 21:06
  Speaker 1: this as far back as maybe October and November of
• 21:10
  Speaker 1: last year and kept a quiet until the end of January. Uh.
• 21:14
  Speaker 1: That's obviously unsettling, if that's true. Uh. And so perhaps
• 21:19
  Speaker 1: to take the focus off that, uh you you you,
• 21:22
  Speaker 1: you shift over to this Hong Kong situation, which is
• 21:25
  Speaker 1: equally troubling. Uh. And and you know, as a result,
• 21:28
  Speaker 1: we're watching Hong Kong right now rather than you know,
• 21:32
  Speaker 1: assigning blame to who knew what when. Hey, Phil, thanks
• 21:35
  Speaker 1: so much for joining us. We always love having you
• 21:37
  Speaker 1: on getting your perspective. Phil Orlando, chief equity market strategist
• 21:41
  Speaker 1: and head of client portfolio management at Federated Hermes. They've
• 21:46
  Speaker 1: had eighty nine billion and equities under management. Joining us
• 21:49
  Speaker 1: on the phone, Phil, thanks so much for joining us.
• 21:51
  Speaker 1: At least it's interesting here. Phil continues to keep I
• 21:54
  Speaker 1: think what we've you know, long scene from Phil is
• 21:57
  Speaker 1: kind of a positive bias to the market here. Uh.
• 22:00
  Speaker 1: And he's certainly been right coming off the bottom, just
• 22:02
  Speaker 1: this great rally, Uh, coming off of the bottom. And
• 22:05
  Speaker 1: I think the markets starting to discount, um, you know,
• 22:08
  Speaker 1: a reopening of economies and of course accommodative central banks
• 22:12
  Speaker 1: around the world pushing this market higher. Tensions have been
• 22:18
  Speaker 1: rising between the US and China. Hong Kong at the
• 22:21
  Speaker 1: very forefront of that, with China imposing passing rules to
• 22:26
  Speaker 1: impose some new security rules on Hong Kong, basically being
• 22:30
  Speaker 1: viewed by the US is stripping that region of its
• 22:33
  Speaker 1: autonomy here with US now. Christopher Balding, associate professor at
• 22:37
  Speaker 1: Fulbright University in Vietnam, and a Bloomberg opinion columnist, Chris
• 22:41
  Speaker 1: I want to start with Hong Kong and its economic
• 22:44
  Speaker 1: position relative to China. How much of an economic hit
• 22:48
  Speaker 1: would it be to Beijing if the United States were
• 22:51
  Speaker 1: to provoke that special trading status with Hong Kong. UM.
• 22:55
  Speaker 1: In some ways, it wouldn't be that big of an issue.
• 22:59
  Speaker 1: Even they're thinking of raising the tariffs to match. UM,
• 23:03
  Speaker 1: not the Hong Kong level, but the China level. UM.
• 23:06
  Speaker 1: There's not a whole lot of manufacturing that takes place
• 23:09
  Speaker 1: in Hong Kong anymore, basically a service economy. UM, it's
• 23:13
  Speaker 1: a big shipping port, lots of lots of trade goes
• 23:16
  Speaker 1: through Hong Kong before arriving in China, UM, which changes
• 23:20
  Speaker 1: the designation of products. UM. But overall, the real economic
• 23:25
  Speaker 1: impact is not where the primary pain would be felt. UM.
• 23:29
  Speaker 1: There are some legislation right now that would basically begin
• 23:33
  Speaker 1: to crimp US dollar access UH in different ways to
• 23:38
  Speaker 1: UH to Hong Kong and Chinese firms UM and entities
• 23:42
  Speaker 1: seeking usl are funding. That is where the real pain
• 23:46
  Speaker 1: would come in, and especially if there was a move,
• 23:49
  Speaker 1: for instance, from by firms to escape prc uh UH
• 23:55
  Speaker 1: legal status and move to places like Singapore UM where
• 23:59
  Speaker 1: there would be much greater confidence and contract enforcement and
• 24:01
  Speaker 1: things like that. So that is where the real pain
• 24:04
  Speaker 1: would be felt, not in the direct economic impact. Chris,
• 24:08
  Speaker 1: give us a sense of white China is asserting its thority. Now.
• 24:12
  Speaker 1: Is there anything specific about this timing here? UM? I
• 24:15
  Speaker 1: think the best theory on that specifically is that they
• 24:19
  Speaker 1: realize UM that to let's say, try and assert control
• 24:23
  Speaker 1: over Hong Kong UH more more strongly UH the way
• 24:28
  Speaker 1: that they were doing last year UH simply wasn't working.
• 24:31
  Speaker 1: So this is essentially the legal version of rolling in
• 24:35
  Speaker 1: a tank into Hong Kong UM. And I think at
• 24:38
  Speaker 1: this point, I think a lot of Hong Kongers I
• 24:40
  Speaker 1: think that the set, the mood seems to be a
• 24:42
  Speaker 1: little bit more resigned to their fate that they're not
• 24:45
  Speaker 1: going to be able to stop this UM and I
• 24:48
  Speaker 1: think one of the things you're hearing from from different
• 24:50
  Speaker 1: people I know is UM is basically it's time. It's
• 24:53
  Speaker 1: it's time to move on, it's time to consider leaving
• 24:56
  Speaker 1: Hong Kong. And I've heard that too from a number
• 24:59
  Speaker 1: of companies that are looking at Singapore, like you said,
• 25:01
  Speaker 1: and trying to make plans sooner rather than later. I
• 25:04
  Speaker 1: want to go back to something that you were saying
• 25:06
  Speaker 1: about the dollar funding pressures that could be foisted upon
• 25:10
  Speaker 1: Beijing due to some of the US moves against Hong Kong.
• 25:14
  Speaker 1: Can you talk a little bit more about that, because
• 25:16
  Speaker 1: I do not think that that's being priced into the
• 25:18
  Speaker 1: market or even talked about much among analysts. Sure. So
• 25:22
  Speaker 1: there's there's there's a couple of specific issues. So for instance,
• 25:27
  Speaker 1: UM some of the legislation that is that is currently
• 25:31
  Speaker 1: in the House, that's already passed the Senate. UM it's
• 25:33
  Speaker 1: specifically targets UM UM UM companies or individuals in Hong
• 25:40
  Speaker 1: Kong or in the banks deal with them and providing
• 25:44
  Speaker 1: UH dollar access and other financial services to them. So,
• 25:48
  Speaker 1: depending on how broadly a lawyer or a regulator wanted
• 25:52
  Speaker 1: to interpret statchutes like that, one could quite plausibly assume
• 25:58
  Speaker 1: that this would include some of the largest Chinese companies
• 26:02
  Speaker 1: and some of the largest Chinese banks would would be
• 26:05
  Speaker 1: wrapped up in this, and so this would prevent US
• 26:08
  Speaker 1: banks and and other banks from potentially servicing those those clients. UM.
• 26:14
  Speaker 1: One of the areas where you've seen this a lot.
• 26:16
  Speaker 1: You saw this a lot before Corona was and and
• 26:19
  Speaker 1: in two thousand nineteen, if there was a lot of
• 26:22
  Speaker 1: US dollar raising by Chinese banks that need to raise capital. UM.
• 26:26
  Speaker 1: We saw just recently that the bank capital and Chinese
• 26:30
  Speaker 1: banks has declined to a long term UH low. It's
• 26:33
  Speaker 1: now just above nine percent, and it's continuing to decline. UM.
• 26:38
  Speaker 1: That's a real problem. They need large amounts of funding,
• 26:42
  Speaker 1: and a lot of that is coming via UM secondary
• 26:45
  Speaker 1: offerings and in various convertibles UM in Hong Kong. So
• 26:49
  Speaker 1: if if they cannot raise the US dollar funding because
• 26:53
  Speaker 1: of sanctions or new legislation, UM, that could cause real,
• 26:58
  Speaker 1: real problems. So Chris, just about thirty seconds give us
• 27:01
  Speaker 1: a sense of is there any recourse for the people
• 27:04
  Speaker 1: of Hong Kong here or is this kind of a
• 27:06
  Speaker 1: fit complete. To be quite frank unfortunately, UM, there does
• 27:12
  Speaker 1: not seem to be a lot of recourse with regards
• 27:15
  Speaker 1: to China. China seems to have made a decision that
• 27:18
  Speaker 1: this is what they're going to do in Hong Kong
• 27:20
  Speaker 1: um and barring uh, you know, significant violence, at which
• 27:24
  Speaker 1: point the PRC seems focused on ramping up and UH
• 27:30
  Speaker 1: and bringing in significant UH police or potential military support. Um.
• 27:35
  Speaker 1: There does not seem to be a lot that that
• 27:37
  Speaker 1: Hong Kong people are, Hong Kong government can do. Chris,
• 27:41
  Speaker 1: thanks so much for joining us. Christopher Balding, Associate Professor
• 27:43
  Speaker 1: at the Fulbright University of Vietnam, also a Bloomberg opinion
• 27:47
  Speaker 1: comms talking about the developments in Hong Kong. Is China
• 27:51
  Speaker 1: asserting ever more control over Hong Kong? Um, it seems
• 27:55
  Speaker 1: to be kind of a trend here and it doesn't
• 27:58
  Speaker 1: seem to be according to us. Are Balding, you know
• 28:01
  Speaker 1: much that Hong Kong can do here, so but certainly
• 28:04
  Speaker 1: ratcheting up the tensions between the US and China. Uh So,
• 28:07
  Speaker 1: we'll have to see how this plays out. But again,
• 28:09
  Speaker 1: the China US trade war is still in out there
• 28:14
  Speaker 1: and still for something for investors to consider. But also,
• 28:18
  Speaker 1: you know, the overall trade very difficult between the two countries.
• 28:23
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 28:26
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 28:28
  Speaker 1: or whatever podcast platform you prefer. M Paul Sweeney, I'm
• 28:31
  Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm
• 28:34
  Speaker 1: on Twitter at Lisa Abram Woyds. One before the podcast,
• 28:37
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