Latest / Bloomberg Intelligence / China Intellectual Property Poses Biggest Thorn For U.S. (Podcast)

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China Intellectual Property Poses Biggest Thorn For U.S. (Podcast) · 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
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. China
• 0:33
  Speaker 1: and the US have been engaged in a trade skirmish
• 0:35
  Speaker 1: for quite a while now, although there is a sign
• 0:38
  Speaker 1: that perhaps these tensions are easing. Joining us now as
• 0:41
  Speaker 1: Bill Rhodes, President and chief executive officer of William R.
• 0:44
  Speaker 1: Rhodes Global Advisors, author of Banker to the World, Leadership
• 0:48
  Speaker 1: Lessons from the front Lines of Global Finance, helped broker
• 0:51
  Speaker 1: some of the biggest deals both at a sovereign and
• 0:54
  Speaker 1: corporate level, over the past decades in which he's been active.
• 0:58
  Speaker 1: He's shoining us here in our interactive Broker Studios. So, Bill,
• 1:02
  Speaker 1: you just got back from China. Do you get the
• 1:05
  Speaker 1: feeling that there is a thawing in the tensions between
• 1:08
  Speaker 1: the US and China from the Chinese perspective? Well, first
• 1:11
  Speaker 1: of all, at least I want to thank you and
• 1:13
  Speaker 1: Tim for inviting me. Is my favorite program, So anyway,
• 1:20
  Speaker 1: it was. It was a very interesting week I spent there,
• 1:23
  Speaker 1: and particularly with the trade tensions. UH. There's no doubt
• 1:26
  Speaker 1: that China wants to come to an agreement because the
• 1:28
  Speaker 1: Chinese economy is slowing down. They have this mountain of
• 1:32
  Speaker 1: debt of over three percent of gross of GDP gross
• 1:37
  Speaker 1: national product, and they have a lot of stresses there
• 1:40
  Speaker 1: on manufacturing is down and sold. No matter what they
• 1:45
  Speaker 1: say in the sense of tough talk, they want to
• 1:48
  Speaker 1: do a deal. It's not going to be in ninety days.
• 1:50
  Speaker 1: But I think we'll see some progress. We already saw
• 1:52
  Speaker 1: the oobile tariffs UH, and I think we're going to
• 1:56
  Speaker 1: see other things going forward. But it's not gonna be
• 1:58
  Speaker 1: solved overnight. The basic problem between the United States and
• 2:02
  Speaker 1: China will not be trade going forward, because I think
• 2:06
  Speaker 1: something can be worked out. I think it's going to
• 2:08
  Speaker 1: be intellectual property. That's going to be a tough one.
• 2:10
  Speaker 1: And I've said this on on your program before. As
• 2:14
  Speaker 1: far as the Chinese economy is going itself, they'll make
• 2:17
  Speaker 1: their six and a half projection for this year, but
• 2:20
  Speaker 1: next year is going to be a tough year. For
• 2:21
  Speaker 1: them because they need to continue financial reform, which means
• 2:25
  Speaker 1: reigning in the bank's bad loans. Uh. You know, the
• 2:29
  Speaker 1: municipality bad loans and the provinces bad loans, and they
• 2:33
  Speaker 1: have to shut down some of these small regional banks
• 2:36
  Speaker 1: in northeast China, which basically a zombie institution. So there's
• 2:40
  Speaker 1: gonna be a lot of pressure on the Chinese economy
• 2:42
  Speaker 1: next year. Uh. They hope they can get six percent,
• 2:45
  Speaker 1: but it could fall below six for the first time ever.
• 2:49
  Speaker 1: Bill Rhodes, you have negotiated during your career with dictators
• 2:54
  Speaker 1: strong men, as well as corporate executives and government officials
• 2:59
  Speaker 1: and central bank regulators. Who are the key people in
• 3:04
  Speaker 1: China right now? Well, obviously, uh, you start off with
• 3:09
  Speaker 1: the president and leader uh Shi Jinping. His vice president
• 3:14
  Speaker 1: is very strong because he is an expert on economics
• 3:18
  Speaker 1: one Shi Shan. He's also was a trouble shooter for
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  Speaker 1: previous governments. He's the one who cleaned up stars in Beijing.
• 3:26
  Speaker 1: He's the one who cleaned up the problems in Guangdong Province.
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  Speaker 1: He's a disciple mentory of of Joranji, the great Premier
• 3:34
  Speaker 1: of China, who cleaned up their Economy and got him
• 3:36
  Speaker 1: into the w t OH. But also the head of
• 3:39
  Speaker 1: the People's Bank of China is very important. We have
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  Speaker 1: a technician in there, and I was privileged enough to
• 3:45
  Speaker 1: to spend an hour and a half alone with him
• 3:47
  Speaker 1: at lunch. Ye Gang his name is. He actually taught
• 3:51
  Speaker 1: at the University Indiana for uh eight years, so his
• 3:55
  Speaker 1: English is as good as ours. And the previous Governor
• 3:59
  Speaker 1: of the People's Bank of China, Joshiah Schwan, who's a
• 4:01
  Speaker 1: leading reformer who's still although he does not have the
• 4:05
  Speaker 1: official position in the People's Bank of China, he has
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  Speaker 1: the title uh, you know, President emeritus there and he's
• 4:11
  Speaker 1: advising UH both the President Si Jinping and uh Want
• 4:15
  Speaker 1: Hi Sean. And then there's one other person who has
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  Speaker 1: the title Vice Premier of the Economy, and that's uh
• 4:23
  Speaker 1: someone named who's new that in the sense that we
• 4:27
  Speaker 1: didn't see him before, and that's his name is Lee Who,
• 4:31
  Speaker 1: And he's the one who's talking with Manuchin on the telephone.
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  Speaker 1: The big problem among others that the Chinese have with us,
• 4:38
  Speaker 1: they don't know who's on first, second, and third in negotiation.
• 4:41
  Speaker 1: It's like tinkers to have is a chance one in
• 4:44
  Speaker 1: his lightheiser the next minutes in Manuchin. Uh, they're confused, well,
• 4:48
  Speaker 1: they're they're confused about who's on first. But also, you know,
• 4:52
  Speaker 1: sort of the distinction between the trade tensions and intellectual
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  Speaker 1: property is confusing to me because I don't totally understand
• 4:58
  Speaker 1: how intertwined those are. Well, I think for the United
• 5:02
  Speaker 1: States is very important because the Chinese announced their program
• 5:05
  Speaker 1: of two thousand twenty five, which was their goal to
• 5:08
  Speaker 1: be the leading UH innovators in technology in the world,
• 5:14
  Speaker 1: and of course that gets into five G and all
• 5:16
  Speaker 1: of these things, and the United States Silicon Valley forever,
• 5:20
  Speaker 1: we've been the leaders in technology, and so the feeling
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  Speaker 1: is that there's a real challenge to us. Also, UH,
• 5:29
  Speaker 1: there's also a feeling here in the United States and
• 5:31
  Speaker 1: in Europe that the Chinese have gone out of their
• 5:34
  Speaker 1: way to gain technology through several different ways. One when
• 5:39
  Speaker 1: in American the European company wants to operates up in
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  Speaker 1: China on a joint venture, they make them turn over
• 5:46
  Speaker 1: their intellectual property. The other thing is many people in
• 5:49
  Speaker 1: the US and Europe feel the Chinese have been stealing
• 5:52
  Speaker 1: technology from us. So this question of intellectual property is
• 5:56
  Speaker 1: going to be tougher to solve than the trade issue,
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  Speaker 1: because let's say the economy slowing down in China, the
• 6:02
  Speaker 1: economy is slowing down here, and so I think it's
• 6:05
  Speaker 1: on both, you know, both governments. I think want to
• 6:09
  Speaker 1: come to a deal, all right, Bill Rhodes. He is
• 6:11
  Speaker 1: the author of Banker to the World Leadership Lessons from
• 6:14
  Speaker 1: the front Lines of Global Finance. Oil definitely having a
• 6:34
  Speaker 1: trickle down effect on broader markets over the past week
• 6:38
  Speaker 1: or so. Uh, the three days ended yesterday, it comprised
• 6:41
  Speaker 1: comprised the biggest drop in the in the oil index,
• 6:45
  Speaker 1: in the oil prices. Joining us now to understand what's
• 6:49
  Speaker 1: been driving the big moves we've been seeing there, John Kilduff,
• 6:51
  Speaker 1: founding partner of Again Capital. So John, let's just start there.
• 6:55
  Speaker 1: What is the main driver behind the declines that we've
• 6:58
  Speaker 1: seen in the price of crude? Well, a relative over
• 7:02
  Speaker 1: supply to the market, partly because sanctions that we're supposed
• 7:06
  Speaker 1: to go on Iran didn't really come to pass, and
• 7:09
  Speaker 1: so they're still producing, and Saudias and Russians rushed production
• 7:14
  Speaker 1: onto the market to make up for what was supposed
• 7:16
  Speaker 1: to be lost barrels. And then now the economic slowing
• 7:19
  Speaker 1: that we're seeing, particularly in China in Asia has weakened
• 7:24
  Speaker 1: the demand side of the equation. So it's sort of
• 7:26
  Speaker 1: been a one to punch here. Uh for the oil
• 7:29
  Speaker 1: commodity John, who are the sellers and are they forced sellers? Well,
• 7:36
  Speaker 1: I'll tell you him. A big speculative long position did
• 7:39
  Speaker 1: get built up into this market, um, right around the
• 7:42
  Speaker 1: highs in October there when we were up around over
• 7:45
  Speaker 1: seventy dollars a barrel for w t I based upon
• 7:47
  Speaker 1: the CFTC data that we get to see every Friday. Uh,
• 7:51
  Speaker 1: they've been washed out. And yes, there's been rumors of
• 7:54
  Speaker 1: forced hedge fund liquidation UM and and a growing a
• 7:59
  Speaker 1: barrish fishooning in this market, and that there's a net
• 8:02
  Speaker 1: short sellers in here now too. So sentiment has really
• 8:06
  Speaker 1: turned quite negative at this point, UM, and it remains so.
• 8:11
  Speaker 1: One thing that I'm struggling with is Saudi Arabia just
• 8:14
  Speaker 1: came out with their budget for next year, and I'm
• 8:17
  Speaker 1: struggling with the idea that they are assuming eighty dollars
• 8:21
  Speaker 1: a barrel for the price of crew next year in
• 8:25
  Speaker 1: order to make their budget work, and they would need
• 8:28
  Speaker 1: a price upwards of ninety dollars a barrel in order
• 8:31
  Speaker 1: to balance their budget. Does that concern you, um? If anything,
• 8:37
  Speaker 1: it's um. You know. It shows me that they have
• 8:39
  Speaker 1: a real incentive to follow through on the the old
• 8:43
  Speaker 1: peck Russia, a chord that was struck a couple of
• 8:45
  Speaker 1: weeks ago. I think they're feeling a little flushed with
• 8:48
  Speaker 1: success because of what they they were able to achieve
• 8:51
  Speaker 1: in the aftermath of the November deal. This whole thing
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  Speaker 1: just fell apart over the summer again because of the
• 8:57
  Speaker 1: real almost trick that was put on the market with
• 9:00
  Speaker 1: the Iran sanctions. So I guess they believe they can
• 9:02
  Speaker 1: do it again. I also think they have barring capacity,
• 9:05
  Speaker 1: so they're not going to worry about it. But they
• 9:07
  Speaker 1: also have home fires to tamp down. Here is there's
• 9:11
  Speaker 1: some unrest in the kingdom. No better way to play
• 9:13
  Speaker 1: kate that than to uh, you know, give away some money,
• 9:16
  Speaker 1: which is which is what this budget does in a big,
• 9:18
  Speaker 1: big way, lots of extra money to government workers and
• 9:21
  Speaker 1: others that should help keep the you know, waters calm
• 9:26
  Speaker 1: or calm there as as we move forward here almost
• 9:29
  Speaker 1: on que by the way, the facility. The Saudi Oil
• 9:32
  Speaker 1: Minister this morning was all over the wires trying to
• 9:35
  Speaker 1: talk up the price, committing to a big cutback and
• 9:38
  Speaker 1: extending this deal next April when they all meet again. So, Um,
• 9:43
  Speaker 1: they're trying to do everything they can to support this price,
• 9:46
  Speaker 1: for sure, John speak if you can about us shail producers,
• 9:50
  Speaker 1: At what price do share producers stop making money? You're
• 9:56
  Speaker 1: getting into that zone now, Pam. You know, particularly when
• 9:59
  Speaker 1: you've sort of had an all the cost not just
• 10:01
  Speaker 1: the pure stage drilling and extraction methodologies. It's gonna start
• 10:05
  Speaker 1: to get tough for them right now. But they have
• 10:08
  Speaker 1: been successful, many of them, particularly in the in the
• 10:11
  Speaker 1: Permian basin, where they've driven break even course down two
• 10:14
  Speaker 1: round thirty five to forty dollars a barrel. Now, some
• 10:16
  Speaker 1: of those numbers are all over the place, so they're
• 10:18
  Speaker 1: gonna try to hang in there. Um. And I know
• 10:21
  Speaker 1: there's a lot of concern too about the indebtedness of
• 10:23
  Speaker 1: the group. I'll tell you when the last generation of
• 10:26
  Speaker 1: this price is crashing back in two era. Um, what
• 10:30
  Speaker 1: the banks basically did was extend the loans, recapitalized the loans,
• 10:34
  Speaker 1: and repackaged a loans. So I'm not as worried about
• 10:37
  Speaker 1: the group falling apart this time, unless we were to
• 10:39
  Speaker 1: get another sort of extended sell off down into the
• 10:42
  Speaker 1: same mid to low thirties. But it's hard to see
• 10:45
  Speaker 1: that happening. John. Every time you've been on, you've been
• 10:48
  Speaker 1: incredibly accurate, and I've been impressed by some of your forecasts.
• 10:52
  Speaker 1: So what's your sense of where oil heads. I don't
• 10:56
  Speaker 1: know throughout next year, it's at the say it's it's
• 11:00
  Speaker 1: a tough call right now. I've been trying to shake
• 11:03
  Speaker 1: up the magic eight ball vigorously um these days. But
• 11:07
  Speaker 1: uh my, my inclination is too as the guys in
• 11:11
  Speaker 1: the bun or guys and gals in the bond markets say,
• 11:13
  Speaker 1: don't fight the Fed, I'm inclined not to bite Saudi Arabia.
• 11:17
  Speaker 1: So if they do come through with the extensive cuts
• 11:19
  Speaker 1: that they're talking about, prices should head back higher. And
• 11:23
  Speaker 1: because also because sentiment has just gotten so negative in
• 11:26
  Speaker 1: this market that there's a tendency to overshoot here in
• 11:29
  Speaker 1: commodities especially, and we should swing back. So I would
• 11:32
  Speaker 1: expect this to be back into the you know, at
• 11:36
  Speaker 1: least low sixties, say by by midyear next year. All right,
• 11:40
  Speaker 1: Thanks very much, John Kilduff, founding partner again Capital speaking
• 11:44
  Speaker 1: about the world of oil. The topic now is the
• 12:05
  Speaker 1: housing market. Sales are previously owned US homes rose for
• 12:09
  Speaker 1: a second consecutive month and exceeded forecasts in November. It
• 12:13
  Speaker 1: suggests that consumer demand is picking up as price gains moderate.
• 12:19
  Speaker 1: Here to tell us more, Darryl Fairweather, chief economist for
• 12:22
  Speaker 1: Redfinn Corp. Joining us from Seattle. Darryl, thank you very
• 12:26
  Speaker 1: much for being with us. Do you believe that the
• 12:30
  Speaker 1: sales of previously owned US homes that this rise will continue?
• 12:35
  Speaker 1: The market right now is much different than it was
• 12:37
  Speaker 1: earlier this year. Earlier this year we had really fast
• 12:41
  Speaker 1: price growth, especially in coastal markets like San Francisco and Seattle.
• 12:45
  Speaker 1: Prices were growing in the double digits every year, and
• 12:48
  Speaker 1: that has moderated since earlier this year. Now price growth
• 12:52
  Speaker 1: is more around four percent. And it's actually taken a
• 12:55
  Speaker 1: while for sellers to get the news that buyer demand
• 12:58
  Speaker 1: isn't what it used to be, so we've seen fewer
• 13:00
  Speaker 1: bidding wars, more price drops. But I think finally sellers
• 13:04
  Speaker 1: are starting to get the message are dropping their prices
• 13:06
  Speaker 1: and that's why we've seen sales pick up this month.
• 13:09
  Speaker 1: So Daryl, do you can you just give us a
• 13:11
  Speaker 1: sense of why there has been a slowdown in the
• 13:14
  Speaker 1: US housing market. Is it an interest rate story, is
• 13:17
  Speaker 1: it just a demand story, or is it a supply story.
• 13:21
  Speaker 1: I think the story here is affordability. So prices were growing,
• 13:24
  Speaker 1: and they were growing very quickly, and recently interest rates
• 13:28
  Speaker 1: one up at the same time, and buyers has finally
• 13:30
  Speaker 1: had enough. They couldn't keep raising their prices and keep
• 13:34
  Speaker 1: paying these high prices getting the same homes. So we've
• 13:37
  Speaker 1: seen buyers back off, and as a result, sellers are
• 13:40
  Speaker 1: starting to drop their prices and meet buyers at their
• 13:43
  Speaker 1: at their price reservation. Do you expect mortgage rates to
• 13:47
  Speaker 1: continue to decline? It's interesting. So mortgage rates follow both
• 13:53
  Speaker 1: supply and demands. So on the supply side, the cost
• 13:56
  Speaker 1: of borrowing is higher, and if the FED rates interest
• 13:59
  Speaker 1: rate rates today, the cost of borrowing will continue to
• 14:02
  Speaker 1: rise for the people who are supplying these mortgages. But
• 14:05
  Speaker 1: at the same time, we've seen mortgage rate demand fall
• 14:08
  Speaker 1: because people are buying fewer homes now than they were
• 14:10
  Speaker 1: last year. It'll be interesting to see which of these
• 14:13
  Speaker 1: forces uh end up dominating. So we could see and
• 14:19
  Speaker 1: a rise in interest rates and on mortgage interest rates.
• 14:22
  Speaker 1: But it buyers back off, then maybe that will be mitigated.
• 14:25
  Speaker 1: So which areas of the market do you think are
• 14:27
  Speaker 1: still poised for significant price increases? I mean are their
• 14:31
  Speaker 1: regions or their sectors of the housing market that still
• 14:34
  Speaker 1: have upside that are significant. Yeah, so places like Nashville, UM, Atlanta, Austin,
• 14:42
  Speaker 1: some of these inland markets. That's where we'll see more
• 14:45
  Speaker 1: buyer demand grow. And that's because people are moving towards
• 14:48
  Speaker 1: more affordable places. We have this migration data redfin where
• 14:52
  Speaker 1: we can see where people are searching for homes based
• 14:54
  Speaker 1: on their IP address, and we see increasing number of
• 14:58
  Speaker 1: people searching for homes and are affordable places, especially in
• 15:01
  Speaker 1: really expensive places like San Francisco or Seattle or Washington,
• 15:05
  Speaker 1: d C. They're looking to move inland. What do you
• 15:08
  Speaker 1: believe institutional owners of real estate will face in I
• 15:14
  Speaker 1: think that so there do you mean by institutional owners
• 15:18
  Speaker 1: companies or do you mean like a typical investor? No, no,
• 15:20
  Speaker 1: A companies. You know the institutional part of the market, right, right,
• 15:26
  Speaker 1: So we have redfind now and there are other institutional
• 15:28
  Speaker 1: owners um like open door and Delo has their own
• 15:31
  Speaker 1: institutional owners UM, they are going to have to change
• 15:35
  Speaker 1: their strategy. Buyers. Previously, they may have seen an offer
• 15:39
  Speaker 1: from an institutional owner and thought this was a really
• 15:41
  Speaker 1: good price. But institutional owners may have to lower their price,
• 15:45
  Speaker 1: and sellers may not want to accept those prices, thinking
• 15:49
  Speaker 1: that the market hasn't changed as much as these institutional
• 15:51
  Speaker 1: owners think the market has changed. So, Daryl, where do
• 15:54
  Speaker 1: you see prices declining the most regionally or in a
• 15:58
  Speaker 1: specific sector? So the places that really saw the most
• 16:03
  Speaker 1: price growth, we're going to see that price growth slow.
• 16:06
  Speaker 1: I don't think that price growth will necessarily go negative. UM,
• 16:09
  Speaker 1: but in places like Seattle and San Francisco, that price
• 16:12
  Speaker 1: growth is not going to be what it was earlier
• 16:15
  Speaker 1: this year or in We're going to see price growth slow.
• 16:18
  Speaker 1: But that's interesting to me. You don't see it actually
• 16:20
  Speaker 1: going negative. Well, So with that, a lot of people
• 16:23
  Speaker 1: actually UM prices have fallen from earlier this year. Some
• 16:28
  Speaker 1: of that is seasonality. The prices have dropped more than
• 16:31
  Speaker 1: just a seasonal effect in places like Seattle in San Francisco.
• 16:34
  Speaker 1: But come spring, prices maybe exactly where they were last spring,
• 16:39
  Speaker 1: maybe a little bit higher. Uh, there's a possibility that
• 16:42
  Speaker 1: may be lower than they were last spring. But I
• 16:44
  Speaker 1: think that's a small a small possibility. Since you're coming
• 16:48
  Speaker 1: to us from Seattle, can't avoid asking the question having
• 16:51
  Speaker 1: to do with Amazon dot Com and new headquarters. What
• 16:55
  Speaker 1: does this mean for those areas? We think prices might
• 16:57
  Speaker 1: go up, but what does it also mean for housing
• 17:01
  Speaker 1: prices in Seattle? Yes, so I actually used to work
• 17:04
  Speaker 1: for Amazon before I came to Redfin, and I had
• 17:06
  Speaker 1: co workers who were tracking where the h Q two
• 17:10
  Speaker 1: is going to go and thinking that they were going
• 17:12
  Speaker 1: to move back home. We're to be close to family
• 17:14
  Speaker 1: depending on where it went. I actually have one friend
• 17:16
  Speaker 1: who whose mom was calling her the day that they
• 17:19
  Speaker 1: announced in Washington, d C. Asking her if she was
• 17:21
  Speaker 1: going to move back home. So I think we'll see, um,
• 17:24
  Speaker 1: some Amazon workers in Seattle put their homes up for
• 17:27
  Speaker 1: sale to move to these new locations because there are
• 17:29
  Speaker 1: all these new jobs and the transfer is pretty easy.
• 17:32
  Speaker 1: In the actual places where the head cars are going home,
• 17:35
  Speaker 1: prices will be affected. Um. It will kind of depend
• 17:38
  Speaker 1: on the transportation that is around those areas. So in
• 17:42
  Speaker 1: a place like Crystal City that's slightly outside the study center,
• 17:46
  Speaker 1: we will probably see housing demand grow the most in
• 17:50
  Speaker 1: the suburbs that are far away from d C but
• 17:52
  Speaker 1: relatively close to Crystal City. So if your commute is
• 17:55
  Speaker 1: going from an hour commute to a half hour commute,
• 17:58
  Speaker 1: that's where we'll see demand go up. Darryl Fairweather, thank
• 18:01
  Speaker 1: you so much for being with us. Daryl Fairweather is
• 18:04
  Speaker 1: chief economist for Redfinn. Interesting to be getting more signs
• 18:08
  Speaker 1: of stability in the US housing market and a more
• 18:11
  Speaker 1: sanguine view of what's to come in the meantime. I
• 18:29
  Speaker 1: want to turn our attention to the information that big
• 18:33
  Speaker 1: tech reveals about its users to uh other companies and
• 18:38
  Speaker 1: profit from it. And joining us now is Mark Douglas,
• 18:40
  Speaker 1: chief executive of Steelhouse. Mark, thank you so much for
• 18:44
  Speaker 1: being with us. The New York Times put out a
• 18:45
  Speaker 1: story that was really eye opening of how Facebook collected
• 18:49
  Speaker 1: data from its users and shared them with other big
• 18:52
  Speaker 1: companies such as Amazon, profiting from it without necessarily disclosing this.
• 18:57
  Speaker 1: So what did you make of that article? Um, well,
• 19:00
  Speaker 1: it's not good, that's that's for sure. I think it's
• 19:04
  Speaker 1: clearly part of a pattern that Facebook's definition of personal
• 19:08
  Speaker 1: information and the common consumer, and certainly government, you know,
• 19:13
  Speaker 1: kind of your euro government, and now US government definition
• 19:16
  Speaker 1: of personal information are very different. And Facebook view that information,
• 19:22
  Speaker 1: like you just said, is something that could they could
• 19:25
  Speaker 1: sell and they could profit ford and they can provide
• 19:27
  Speaker 1: the partners, and you know, it's it's just not a
• 19:32
  Speaker 1: great pattern that they've established. And now is even more
• 19:35
  Speaker 1: is coming light with the story Mark Douglas, do you
• 19:39
  Speaker 1: believe this to be an intentional effort on the part
• 19:42
  Speaker 1: of Facebook to obscure what actually happened? Or is this
• 19:47
  Speaker 1: something that, as they describe many times, the technological wherewithal
• 19:52
  Speaker 1: in order to follow all this may not be available. Well,
• 19:57
  Speaker 1: I think essentially the this is based on the reporting
• 20:03
  Speaker 1: from the New York Times, this was intentional. This wasn't
• 20:07
  Speaker 1: a data breach, This was an accidental. Facebook provided information
• 20:11
  Speaker 1: to partners in order to benefit those partners businesses and
• 20:15
  Speaker 1: for Facebook to benefit ultimately. The reason they're doing it
• 20:19
  Speaker 1: is because they don't think there would be a backlash
• 20:21
  Speaker 1: from the users, and quite frankly, there hasn't been much
• 20:24
  Speaker 1: of a backlash from the users. Although Facebook usages down,
• 20:28
  Speaker 1: Instagram usages is continuing to expand rapidly, and at the
• 20:32
  Speaker 1: end of the day, you know, these stories come out
• 20:35
  Speaker 1: and people just keep using these platforms and and somewhat
• 20:37
  Speaker 1: yawned about them. And so as long as that's the
• 20:40
  Speaker 1: case Facebook, I think now it's such a spotlight on
• 20:43
  Speaker 1: them that they have to restrict those actions. But they
• 20:46
  Speaker 1: didn't have that spotlight when this was occurring, and so
• 20:49
  Speaker 1: so they had no incentive not to do it. You know.
• 20:52
  Speaker 1: But Mark, I mean to push back a little bit
• 20:54
  Speaker 1: exactly the point that you're making that users don't care.
• 20:57
  Speaker 1: That they're willing to go along with this contract of
• 21:00
  Speaker 1: getting free access to platforms that connect them with their
• 21:03
  Speaker 1: friends and give them access to news or in return
• 21:06
  Speaker 1: for giving up some of their privacy. So where does
• 21:09
  Speaker 1: the problem come in, Well, the problem comes in in
• 21:14
  Speaker 1: that the governments are not agreeing with the consumers using
• 21:19
  Speaker 1: the platforms, you know, the the EU, the European Union
• 21:24
  Speaker 1: clearly doesn't agree with all the laws they've been passing,
• 21:29
  Speaker 1: and the U s Government seems to be somewhere in
• 21:31
  Speaker 1: the middle. We have hearings, but then there's no legislation,
• 21:35
  Speaker 1: and so the and and again the reason that's probably
• 21:38
  Speaker 1: occurring is because the senators and congressmen are not are
• 21:43
  Speaker 1: not getting you know, kind of a huge consumer backlash
• 21:46
  Speaker 1: on this. And I think consumers. You know, they think
• 21:49
  Speaker 1: of this like, Okay, so my friend list was shared
• 21:52
  Speaker 1: with Spotify and I got better music Again what you
• 21:55
  Speaker 1: just said. They think it's a quid pro quo and um,
• 21:59
  Speaker 1: but think ultimately this church Facebook. I think the big,
• 22:02
  Speaker 1: big problem Facebook is going to have, it's going to
• 22:05
  Speaker 1: be I think it's going to be very hard for
• 22:07
  Speaker 1: them to make acquisitions. Um. Everything they do is going
• 22:10
  Speaker 1: to be scrutinized going forward. And I think this is
• 22:13
  Speaker 1: starting to put it over the top. This is a
• 22:15
  Speaker 1: just clear disclosure of information without the slosing it to
• 22:19
  Speaker 1: the consumers that that provided the information. Mark Douglas. This
• 22:23
  Speaker 1: comes at a time when the government has received investigations
• 22:29
  Speaker 1: and reports about the use of platforms such as Facebook, Twitter,
• 22:34
  Speaker 1: and Instagram, which is owned by Facebook, as part of
• 22:38
  Speaker 1: an effort on the part of the Russian Internet Research
• 22:44
  Speaker 1: Agency to manipulate what people see an access online. Is
• 22:51
  Speaker 1: that in any way connected based on the culture that
• 22:55
  Speaker 1: you know about Facebook, No, I don't think that's in
• 22:58
  Speaker 1: any way connected. At think that what that proves is
• 23:01
  Speaker 1: that Facebook's ultimate business as they are an advertising platform
• 23:06
  Speaker 1: to reach the consume. The two point two billion users
• 23:08
  Speaker 1: reaching Facebook, the over billion users using Instagram, over billion
• 23:12
  Speaker 1: users using What'sapp, and it's a very effective advertising platform.
• 23:17
  Speaker 1: And essentially the Russian government figured out that they could
• 23:21
  Speaker 1: you can sway elections. You can you cannot only use
• 23:24
  Speaker 1: it to sell clothes, you could use it to sell
• 23:26
  Speaker 1: presidents and they and they did that. I can't say
• 23:31
  Speaker 1: that the Russian government led to the current president's elections,
• 23:36
  Speaker 1: but clearly there was a lot of that spending going
• 23:39
  Speaker 1: on to to try and influence it. And so this
• 23:42
  Speaker 1: is the quandary that that we're in. The platforms are
• 23:45
  Speaker 1: very fun and useful Facebook, Instagram, they're super effective advertising platforms,
• 23:50
  Speaker 1: and there's not a lot of controls on either one
• 23:53
  Speaker 1: of those. And you know, Facebook is imposing controls on themselves,
• 23:57
  Speaker 1: but they're doing it because of the scrutiny that they're on,
• 24:00
  Speaker 1: not because of what appears to be kind of any
• 24:05
  Speaker 1: clear standard that they had in place at the time.
• 24:08
  Speaker 1: Thanks very much for being with us. Mark Douglas is
• 24:11
  Speaker 1: the chief executive of Steelhouse, based in Los Angeles. Thanks
• 24:21
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 24:24
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 24:28
  Speaker 1: or whatever podcast platform you prefer I'm pim Fox. I'm
• 24:31
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 24:35
  Speaker 1: It's one before the podcast. You can always catch us
• 24:38
  Speaker 1: worldwide on Bloomberg Radio